CF Unit4 P7-3 Evaluating Four
P7-3 Evaluating Four Alternative Inventory Methods
Based on Income and Cash Flow LO7-2, 7-3
At the end of January 2014, the records of Donner
Company showed the following for a particular item that sold at $16 per unit:
|
Transactions
|
Units
|
Amount
|
|
|
Inventory,
January 1, 2014
|
500
|
$ 2,365
|
4.73
|
|
Purchase,
January 12
|
600
|
3,600
|
6
|
|
Purchase,
January 26
|
160
|
1,280
|
8
|
|
Sale
|
(370)
|
|
|
|
Sale
|
(250)
|
Required:
1a. Compute
Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO,
and specific identification. For specific identification, assume that the first
sale was selected from the beginning inventory and the second sale was selected
from the January 12 purchase. (Round unit price to
2 decimal places. Input all amounts as positive values.)
Input areas are shaded.
|
Average
Cost
|
Cost
of Good Available for Sale
|
Cost
of Goods Sold
|
||||
|
# of
Units
|
Cost
per Unit
|
Cost
of Goods Available for Sale
|
# of
Units Sold
|
Cost
per Unit
|
Cost
of Goods Sold
|
|
|
Beginning inventory
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
January 12, 2014
|
|
|
|
|
|
|
|
January 26, 2014
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
|
FIFO
|
Cost
of Goods Available for Sale
|
Cost
of Goods Sold
|
||||
|
|
# of Units
|
Cost per
Unit
|
Cost of Goods Available
for Sale
|
# of
Units Sold
|
Cost per
Unit
|
Cost of
Goods Sold
|
|
Beginning inventory
|
|
|
$0
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
January 12, 2014
|
|
|
$0
|
|
|
|
|
January 26, 2014
|
|
|
$0
|
|
|
|
|
Total
|
-
|
|
$0
|
0
|
|
|
|
LIFO
|
Cost
of Goods Available for Sale
|
Cost
of Goods Sold
|
||||
|
# of Units
|
Cost per Unit
|
Cost of Goods Available for Sale
|
# of Units Sold
|
Cost per Unit
|
Cost of Goods Sold
|
|
|
Beginning
inventory
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
January 12, 2014
|
|
|
|
|
|
|
|
January 26, 2014
|
|
|
|
|
|
|
|
Total
|
-
|
|
$ -
|
0
|
|
$ 4,040
|
|
Specific Identification
|
Cost
of Goods Available for Sale
|
Cost
of Goods Sold
|
||||
|
# of Units
|
Cost per Unit
|
Cost of Goods Available for Sale
|
# of Units Sold
|
Cost per Unit
|
Cost of Goods Sold
|
|
|
Beginning inventory
|
|
|
|
|
|
|
|
Purchases:
|
|
|
|
|
|
|
|
January 12, 2014
|
|
|
|
|
|
|
|
January 26, 2014
|
|
|
|
|
|
|
|
Total
|
-
|
|
$ -
|
0
|
|
|
Required:
2a. FIFO and
LIFO, which method would result in the higher pretax income?
2b. FIFO and LIFO, which would result in the higher
EPS?
3 FIFO and
LIFO, which method would result in the lower income tax expense? Assume a 30
percent average tax rate.
4 FIFO and
LIFO, which method would produce the more favorable cash flow?
File name: CF unit4 P7-3 Evaluating Four .xls File type: .doc PRICE: $15
