5-8 due to a clerical error, a company overstated $50,000 the amount on hand at the end of the year. will net income for the year be overstated or understated? Identify the two accounts on the year en

5-8 due to a clerical error, a company overstated $50,000 the amount on hand at the end of the year. will net income for the year be overstated or understated? Identify the two accounts on the year end balance sheet that will be in error and indicate whether they will be understated or overstated.

5-13 write the letter of the method that is most applicable to each statement

a. specific identification

b. average cost

c. FIFO

d. LIFO

1. IS THE MOST REALISTIC ENDING INVENTORY

2. RESULTS IN THE COST OF GOODS SOLD BEING CLOSEst to current product cost

3. results in highest income during periods of inflation

4. results in highest income ending inventory during periods of inflation

5. smooths out cost during periods of inflation

6. is not practical for most businesses

7. puts more weight on the cost of the larger number of units purchased

8. is an assumption that most closely reflects the physical flow of goods for most businesses

9. is not an acceptable method under the IFRS

5-1 BUSINESS INCUR VARIOUS COST IN SELLING GOODS AND SERVICES. EACH BUSINESS MUST DECIDED WHICH COST ARE EXPENSES OF THE PERIOD AND WHICH SHOULD BE INCLUDED IN THE COST OF THE INVENTORY. tHE FOLLOWING TABLE LIST VARIOUS TYPES OF BUSINESSES ALONG WITH CERTAIN TYPES OF COST THEY INCUR:

business types of cost expense of the period inventory cost other treatment

retail shoe store shoes for sale

shoe boxes

advertising signs

grocery store canned goods on the shelf

produce

cleaning supplies

cash registers

frame shop wooden frame supplies

nails

glass

walk in print shop paper

copy machine

toner cartridges

restaurant frozen food

china and silverware

prepared foods

spices

required: place an X in the appropriate column. Any item under the other treatment, explain what the appropriate treatment is.

5-3 Assume all expenses incurred by the 3 companies are the same for cost of goods sold. The companies use the following methods to value ending inventory: Co. A-WEIGHTED AVERAGE COST, Co.B- FIFO, Co. C- LIFO

REQUIRED: 1. WHICH OF THE 3 COMPANIES WILL REPORT THE HIGHEST NET INCOME? EXPLAIN

2. WHICH OF THE 3 companies will pay the least in income taxes? explain

3. which method of inventory costing do you believe is superior to the others in providing information to potential investors? explain

4. explain how your answers to part (1), (2), and (3) would change if the cost to purchase inventory had been falling instead of rising

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