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Cornerstones of Financial Accounti...

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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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( Appendix 6B) Inventory Costing Methods

Grencia Company uses a periodic inventory system. For 2018 and 2019, Grencia has the following data (assume all purchases and sales are for cash):

Chapter 6, Problem 73BPSB, ( Appendix 6B) Inventory Costing Methods Grencia Company uses a periodic inventory system. For 2018

Required:

1. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using FIFO.

2. Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using LIFO.

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

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

5. CONCEPTUAL CONNECTION Which method produces the most realistic amount for income? For inventory? Explain your answer.

6. CONCEPTUAL CONNECTION What is the effect of purchases made later in the year on the gross margin when LIFO is employed? When FIFO is employed? Be sure to explain why any differences occur.

7. CONCEPTUAL CONNECTION If you worked Problem 6-68B, compare your answers. What are the differences? Be sure to explain why any differences occurred.

To determine

(a)

Introduction:

In this system, inventory not updated day to day basis.

A real counting of goods which is remaining in the hand calculating at the end of accounting period.

It always maintain a specific accounting period for determine a periodic financial statement. This may use gross method of net method, but always shows a single momentary value for each journal.

Cost of goods sold (COGS) = Beginning inventory + Purchases − Ending inventory

To choose:

Compute cost of goods sold, the cost of ending inventory, and gross margin for each year using FIFO.

Explanation

Closing stock for 2018

Date Units Rate Total
2018
2 august
100 56 5600
3 dec 400 58 23200
Total 500 28800

Calculate cost of goods sold

Date Purchase unit Rate Total
1 feb 700 52 36400
2 august 500 56 28000
3 dec 400 58 23200
Total 1600 87600

Cost of goods sold = Cost of units in beginning inventory + Cost of units purchased during the period − Cost of units in ending inventory

=$4500 + $87600  $28800

= $63300

Gross margin = Total sale − cost of goods sold

= 1200 units× 90  $63300

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, the cost of ending inventory, and gross margin for each year 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, the cost of ending inventory, and gross margin for each year using Average cost method.

To determine

(d)

Introduction:

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.

Cost of goods sold (COGS) = Beginning inventory + Purchases − Ending inventory

To discuss:

Which method produces the most realistic amount paid for taxes.

To determine

(e)

Introduction:

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.

Cost of goods sold (COGS) = Beginning inventory + Purchases − Ending inventory

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.

To discuss:

Which method produces the most realistic amount for income? For inventory? Explain your answer.

To determine

(f)

Introduction:

In this system, inventory not updated day to day basis. A real counting of goods which is remaining in the hand calculating at the end of accounting period. It always maintain a specific accounting period for determine a periodic financial statement. This may use gross method of net method, but always shows a single momentary value for each journal.

Cost of goods sold (COGS) = Beginning inventory + Purchases − Ending inventory

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 discuss:

What effect of purchase made later in the year on the gross margin when LIFO is employed? When FIFO is employed? Be sure to explain why any differences occur.

To determine

(g)

The periodic framework depends upon an intermittent physical check of the stock to decide the closure stock parity and the expense of products sold, while the perpetual framework monitors stock adjusts.

To discuss:

Find the difference and compare the result with all method.

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