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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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( Appendices 6A and 6B) Inventory Costing Methods

Edwards Company began operations in February 2019. Edwards accounting records provide the following data for the remainder of 2019 for one of the items the company sells:

Chapter 6, Problem 72BPSB, ( Appendices 6A and 6B) Inventory Costing Methods Edwards Company began operations in February 2019.

 Edwards uses a periodic inventory system. All purchases and sales were for cash.

Required:

1. Compute cost of goods sold and the cost of ending inventory using FIFO.

2. Compute cost of goods sold and the cost of ending inventory using LIFO.

3. Compute cost of goods sold and the cost of ending inventory using the average cost method. ( Note: Use four decimal places for per-unit calculations and round all other numbers to the nearest dollar.)

4. Prepare the journal entries to record these transactions assuming Edwards chooses to use the FIFO method.

5. CONCEPTUAL CONNECTION Which method would result in the lowest amount paid for taxes?

6. CONCEPTUAL CONNECTION Refer to Problem 6-67B and compare your results. What are the differences? Be sure to explain why the differences occurred.

To determine

(a)

Introduction:

In the First in first out method, which goods purchased by the company firstly then sold these goods firstly.

This method is simple while calculating the value of goods. Rotation of goods according to the method those goods firstly sold which purchase firstly.

To compute:

Compute cost of goods sold and the cost of ending inventory using FIFO.

Explanation

Cost of goods sold = total sale units × purchase price

Activity Cost of goods sold
1 April 9 × 58=522
1 × 72=72
2 July 5 ×
To determine

(b)

Introduction:

In last in first out method, the company sold those types of goods which purchase at the end of last day purchase and sold firstly.

Calculation of cost of goods sold and ending value according to this method.

The last in, first out (LIFO) method is used to place an accounting value on inventory. The LIFO method operates under the assumption that the last item of inventory purchased is the first one sold.

To compute:

Compute cost of goods sold and the cost of ending inventory using LIFO.

To determine

(c)

Introduction:

In average cost method, the company calculating the goods value on the average basis of all similar goods purchase by the company. The average cost method is calculated by dividing the cost dof goods purchase in inventory divided by the total number of item available for sale.

The average cost method is an inventory costing method in which the cost of every thing in an inventory is determined on the basis of the average cost of every comparative great in the inventory.

To compute:

Compute cost of goods sold and the cost of ending inventory using Average cost method.

To determine

(d)

Introduction:

In the First in first out method, which goods purchased by the company firstly then sold these goods firstly.

This method is simple while calculating the value of goods. Rotation of goods according to the method those goods firstly sold which purchase firstly.

To discuss:

Prepare the journal entries to record these transactions assuming Edwards chooses to use the FIFO method.

To determine

(e)

Introduction:

In last in first out method, the company sold those types of goods which purchase at the end of last day purchase and sold firstly.

Calculation of cost of goods sold and ending value according to this method.

The last in, first out (LIFO) method is used to place an accounting value on inventory. The LIFO method operates under the assumption that the last item of inventory purchased is the first one sold.

To choose:

Which method would result in the lowest amount paid for taxes?

To determine

(f)

A periodic inventory system is an accounting system, in this system calculating the value of goods at the end of the accounting period or in fixed period.

In this system, cost of goods sold is calculated at the end the period and all entry makes in a single day. In this system account not updated day to day transactions.

To discuss:

Find the difference and compare the result with all method.

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