[管理学]西方财务会计课后习题答案

[管理学]西方财务会计课后习题 答案 八年级地理上册填图题岩土工程勘察试题省略号的作用及举例应急救援安全知识车间5s试题及答案 Chapter 6 Merchandise Inventory and Cost of Goods Sold Check Points (10 min.) CP 6-1 Nissan North America Balance Sheet December 31, 20X6 Current assets: Inventory (300 @ $80)………………….. $24,000 Nissan North America Income Statement Year Ended December 31, 20X6 $84,000 Sales revenue [700 ， ($80 + $40)]………. Cost of goods sold (700 @ $80)………… 56,000 Gross profit…………………………………. $28,000 379 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10-15 min.) CP 6-2 1. (Journal entries) Inventory………………………………….. 100,000 Accounts Payable……………………. 100,000 28,000 Cash ($140,000 ， .20)…………………… 112,000 Amounts Receivable ($140,000 ， .80).. Sales Revenue………………………... 140,000 Cost of Goods Sold…………………….. 60,000 60,000 Inventory ($100,000 ， .60)………….. 2. (Financial statements) BALANCE SHEET Current assets: Inventory ($100,000 – $60,000)………………. $40,000 INCOME STATEMENT Sales revenue……………………………………… $140,000 Cost of goods sold……………………………….. 60,000 Gross profit………………………………………… $ 80,000 380 Financial Accounting 6/e Solutions Manual (10 min.) CP 6-3 Billions Inventory………………………… 6.4 Cash…………………………... 6.4 Accounts Receivable…………. 28.5 Sales Revenue………………. 28.5 Cost of Goods Sold…………… 6.2 Inventory……………………... 6.2 Cash……………………………… 26.3 Accounts Receivable………. 26.3 381 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10 min.) CP 6-4 1. Inventory costs are increasing from $10 to $14 to $18 per unit. 2. FIFO results in the highest cost of ending inventory ($360) because under FIFO the ending inventory is costed at the last costs incurred during the period. When costs are increasing, the last costs are the highest costs. FIFO results in the lowest cost of goods sold. This occurs because the oldest costs are assigned to cost of goods sold. When costs are increasing, the oldest costs are the lowest. FIFO results in the highest gross profit because cost of goods sold, the expense, is the lowest. (Sales revenue is unaffected by the inventory costing method.) 3. LIFO results in the lowest cost of ending inventory ($240) because under LIFO, the ending inventory is costed at the oldest costs. When costs are increasing, the oldest costs are the lowest costs. LIFO results in the highest cost of goods sold. This occurs because the last costs of the period are assigned to cost of goods sold. When costs are increasing, the last costs are the highest. LIFO results in the lowest gross profit because cost of goods sold, the expense, is the highest. (Sales revenue is unaffected by the inventory costing method.) 382 Financial Accounting 6/e Solutions Manual (10 min.) CP 6-5 a b c Average Cost FIFO LIFO Cost of goods sold: Average (50 @ $15*) $750 FIFO (10 @ $10) + (25 @ $14) + (15 @ $18) $720 LIFO (25 @ $18) + (25 @ $14) $800 Ending inventory: Average (10 @ $15*) $150 FIFO (10 @ $18) $180 LIFO (10 @ $10) $100 _____ *Average cost ($100 + $350 + $450) = = $15 per unit (10 + 25 + 25) 383 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10-15 min.) CP 6-6 Kinko’s Income Statement Year Ended December 31, 20XX Average FIFO LIFO $12,000 $12,000 $12,000 Sales revenue (600 ， $20) Cost of goods sold (600 ， $9.90*) 5,940 5,900 (100 ， $9) + (500 ， $10) 6,000 (600 ， $10) Gross profit 6,060 6,100 6,000 Operating expenses 4,000 4,000 4,000 Net income $ 2,060 $ 2,100 $ 2,000 _____ * Beginning inventory (100 @ $9.20)………….. $ 920 Purchases (700 @ $10)………………………… 7,000 Goods available…………………….…………… $7,920 Average cost per unit $7,920 / 800 units… $ 9.90 384 Financial Accounting 6/e Solutions Manual (10 min.) CP 6-7 Kinko’s Income Statement Year Ended December 31, 20XX Average FIFO LIFO $12,000 $12,000 $12,000 Sales revenue (600 ， $20) Cost of goods sold (600 ， $9.90*) 5,940 5,900 (100 ， $9) + (500 ， $10) ______ ______ 6,000 (600 ， $10) Gross profit 6,060 6,100 6,000 Operating expenses 4,000 4,000 4,000 Income before income tax $ 2,060 $ 2,100 $ 2,000 Income tax expense (40%) $ 824 $ 840 $ 800 *From CP 6-6 Method to Method to maximize minimize reported income tax income expense. (before tax). (5 min.) CP 6-8 Lands’ End managers can delay purchases of inventory until the next year. Under LIFO, high inventory costs that would have been paid for inventory do not become expense as cost of goods sold in the current year. As a result, the current year’s income statement reports a higher net income than Lands’ End would have reported if the company had replaced inventory before year end. 385 Chapter 6 Merchandise Inventory and Cost of Goods Sold (5-10 min.) CP 6-9 Millions BALANCE SHEET Current assets: Inventories, at market (which is lower than cost).. $ 330 INCOME STATEMENT Cost of goods sold [$1,001 + ($333 – $330)]………… $1,004 386 Financial Accounting 6/e Solutions Manual (10 min.) CP 6-10 1. FIFO 2. LIFO Gross profit percentage: Gross profit $460* $340** = = 46% = 34% Net sales revenue $1,000 $1,000 _____ * $1,000 – $540 = $460 ** $1,000 – $660 = $340 Inventory turnover: Cost of goods sold $540 $660 = Average inventory ($100 + $360) / 2 ($100 + $240) / 2 = 2.3 times = 3.9 times 3. Gross profit percentage — FIFO looks better. 4. Inventory turnover — LIFO looks better. 387 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10-15 min.) CP 6-11 1. Beginning inventory……………………………... $ 300,000 + Purchases……………………………………….… 1,600,000 = Goods available…………………………………... 1,900,000 – Cost of goods sold………………………………. (1,800,000) = Ending inventory……………………………….… $ 100,000 2. Beginning inventory…………………………….. $ 300,000 + Purchases……………………………………….… 1,600,000 s = Goods available…………………………………... 1,900,000 a m – Cost of goods sold: e $3,000,000 Sales revenue………………………. (1,200,000) Less estimated gross profit (40%) Estimated cost of goods sold………………. (1,800,000) = Estimated cost of ending inventory…………... $ 100,000 388 Financial Accounting 6/e Solutions Manual (5-10 min.) CP 6-12 Correct Amount (Millions) a. Inventory ($333 + $3)………………………………… $ 336 b. Net sales (unchanged)………………………………. $1,755 c. Cost of goods sold ($1,001 – $3)…………………... $ 998 d. Gross profit ($754 + $3)……………………….…….. $ 757 (10 min.) CP 6-13 1. Last year’s reported gross profit was understated. Correct gross profit last year was $5.6 million ($4.0 + $1.6). 2. This year’s gross profit is overstated. Correct gross profit for this year is $3.2 million ($4.8 – $1.6). 3. Lang’s perspective is better because correcting the error changes the trend of correct gross profit from up (good) to down (bad), as follows: Millions Last Year This Year Trend Reported gross profit…….. $4.0 $4.8 Up (Good) Correct gross profit………. $5.6 $3.2 Down (Bad) 389 Chapter 6 Merchandise Inventory and Cost of Goods Sold (5-10 min.) CP 6-14 1. Ethical. There is nothing wrong with buying inventory whenever a company wishes. 2. Ethical. Same idea as 1. 3. Unethical. The company falsified its reported amounts of inventory and net income. 4. Unethical. The company falsified its reported inventory purchases, cost of goods sold, and net income in order to cheat the government (and the people) out of income tax. 5. Unethical. The company falsified its reported amount of inventory in order to cheat the government (and the people) out of taxes. 390 Financial Accounting 6/e Solutions Manual Exercises (15-20 min.) E 6-1 Req. 1 (journal entried) Perpetual System 1. Purchases: Thousands Inventory…………………….……….… 2,200 Accounts Payable…………………. 2,200 2. Sales: 700 Cash ($3,500 ， .20)…….…………….. 2,800 Accounts Receivable ($3,500 ， .80). Sales Revenue…………….………. 3,500 Cost of Goods Sold………………….. 2,100 Inventory………………….……….... 2,100 Req. 2 (financial statement amounts) BALANCE SHEET Thousands Current assets: Inventory ($370 + $2,200 – $2,100)... $ 470 INCOME STATEMENT Sales revenue……………………………. $3,500 Cost of goods sold……………………… 2,100 Gross profit………………………………. $1,400 391 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-25 min.) E 6-2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 1 Inventory ($640 + $1,870 + $900)………. 3,410 Accounts Payable……………………… 3,410 2 Accounts Receivable (17 @ $500)……... 8,500 Sales Revenue………………………….. 8,500 Cost of Goods Sold………………………. 2,800* Inventory………………………………… 2,800 3 Sales revenue……………………………… $8,500 Cost of goods sold……………………….. 2,800 Gross profit………………………………… $5,700 $1,410 Ending inventory ($800 + $3,410 – $2,800)……... _____ *(9 @ $160) + (8 @ $170) = $2,800 392 Financial Accounting 6/e Solutions Manual (10-15 min.) E 6-3 1. Inventory Begin. Bal. ( 5 units @ $160) 800 Purchases Oct. 8 ( 4 units @ $160) 640 15 (11 units @ $170) 1,870 Cost of goods sold 26 ( 5 units @ $180) 900 (17 units @ $?) ? Ending bal. ( 8 units @ $?) ? Cost of Goods Sold Ending Inventory (a) Specific unit cost (6 @ $160) + (11 @ $170) = $2,830 (3 @ $160) + (5 @ $180) = $1,380 (b) Average cost = $2,863 = $1,347 17 ， $168.40* 8 ， $168.40* _____ ($800 + $640 + $1,870 + $900) *Average cost per unit = = $168.40 (5 + 4 + 11 + 5) (c) FIFO (9 @ $160) + (8 @ $170) = $2,800 (5 @ $180) + (3 @ $170) = $1,410 (d) LIFO (5 @ $180) + (11 @ $170) + (1 @ $160) = $2,930 (8 @ $160) = $1,280 2. LIFO produces the highest cost of goods sold. FIFO produces the lowest cost of goods sold. The increase in inventory cost from $160 to $170 to $180 per unit causes the difference in cost of goods sold. 393 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-20 min.) E 6-4 Cost of goods sold: LIFO ($2,930) – FIFO ($2,800)………………………… $130 .35 ， Income tax rate……………………………………….. LIFO advantage in tax savings………………………….. $ 46 (15 min.) E 6-5 1. a. FIFO Cost of goods sold: (5 @ $90) + (5 @ $95)……………... $925 Ending inventory: 7 @ $95……………………………… $665 b. LIFO Cost of goods sold: 10 @ $95…………………………….. $950 Ending inventory: (5 @ $90) + (2 @ $95)……………... $640 2. VPA, Inc. Income Statement Month Ended May 31, 20XX Sales revenue (3 @ $150) + (7 @ $155)……………. $1,535 Cost of goods sold……………………………………. 925 Gross profit…………………………………………….. 610 Operating expenses…………………………………... 310 Income before income tax…………………………… 300 Income tax expense (40%)…………………………… 120 Net income……………………………………………… $ 180 394 Financial Accounting 6/e Solutions Manual (15 min.) E 6-6 Millions 1. Gross profit: FIFO LIFO Sales revenue…………………………………… $4.9 $4.9 Cost of goods sold 4.2 FIFO: 600,000 ， $7…………………………… LIFO: (400,000 ， $5) + (100,000 ， $6) 3.3 + (100,000 ， $7)……………………… Gross profit……………………………………… $ .7 $1.6 2. Gross profit under FIFO and LIFO differ because inventory costs decreased during the period. If you base your prediction on the decrease in inventory unit cost, then, yes, you would predict that LIFO gross profit would be higher. But if you assume that FIFO produces higher gross profit, then, no, the actual result does not follow your prediction. 395 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-20 min.) E 6-7 DATE: _____________ TO: Rick Tabor FROM: Student Name SUBJECT: Proposal for Saving Income Tax We can save income tax by buying above-normal quantities of inventory before the end of the year. Inventory costs are rising, and the company uses the LIFO inventory method. Under LIFO, the higher cost of year-end purchases of inventory goes straight into cost of goods sold. This increases cost of goods sold and decreases net income and income taxes. Because our inventory levels are lower than normal, we need the inventory anyway. In effect, we can use our cash to buy inventory or to pay income taxes. I think it would be wiser to buy inventory. 396 Financial Accounting 6/e Solutions Manual (10-15 min.) E 6-8 Specific unit cost 1. Used to account for automobiles, jewelry, and art objects. Average 2. Provides a middle-ground measure of ending inventory and cost of goods sold. FIFO 3. Maximizes reported income. LIFO 4. Matches the most current cost of goods sold against sales revenue. LIFO 5. Results in an old measure of the cost of ending inventory. LIFO 6. Generally associated with saving income taxes. FIFO 7. Results in a cost of ending inventory that is close to the current cost of replacing the inventory. LIFO 8. Enables a company to buy high-cost inventory at year end and thereby to decrease reported income. LIFO 9. Enables a company to keep reported income from dropping lower by liquidating older layers of inventory. LCM 10. Writes inventory down when replacement cost drops below historical cost. 397 Chapter 6 Merchandise Inventory and Cost of Goods Sold (5-10 min.) E 6-9 Jeffrey Corporation Income Statement (partial) Year Ended December 31, 20X4 $225,000 Sales revenue ……………………………………………… 111,000 Cost of goods sold [$110,000 + ($18,000 – $17,000)].. $114,000 Gross profit………………………………………………… Note: Cost was used for beginning inventory because cost was lower than market. Market (replacement cost) was used for ending inventory because market was lower than cost. 398 Financial Accounting 6/e Solutions Manual (20-25 min.) E 6-10 A B C D E 1 WHITEWATER CANOE SALES 2 ESTIMATED INCOME UNDER FIFO AND LIFO 3 JANUARY 20XX 4 5 FIFO LIFO FIFO LIFO 6 7 Sales $260,000 $260,000 $260,000 $260,000 8 9 Cost of goods sold 10 Beginning inventory 63,000 63,000 63,000 63,000 11 Net purchases 159,000 159,000 182,000 182,000 12 13 Goods available 222,000 222,000 245,000 245,000 14 Ending inventory (85,000) (78,000) (85,000) (78,000) 15 16 Cost of goods sold 137,000 144,000 160,000 167,000 17 18 Gross profit 123,000 116,000 100,000 93,000 19 Operating expenses 83,000 83,000 83,000 83,000 20 Income from operations 21 40,000 33,000 17,000 10,000 22 Income tax expense 16,000 13,200 6,800 4,000 23 24 Net income $ 24,000 $ 19,800 $ 10,200 $ 6,000 25 399 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-20 min.) E 6-11 (Amounts in millions) a. $ 1,055 (Let a = beginning inventory; a + $7,344 – $1,294 = $7,105 a = $1,055) b. $ 12,459 ($19,564 – $7,105) d. $150,255 ($191,329 – $41,074) c. $151,904 (Let c = Purchases; $19,793 + c – $21,442 = $150,255 c = $151,904) e. $ 12,650 ($33,726 – $21,076) f. $ 4,367 ($972 + $3,395) g. $ 546 ($513 + $1,005 – $972) The Coca-Cola Company Income Statement Year Ended December 31, 20XX (Millions) Net sales $19,564 Cost of goods sold Beginning inventory $1,055 Net purchases 7,344 Goods available 8,399 Ending inventory (1,294) Cost of goods sold 7,105 Gross profit 12,459 Operating and other expenses 7,886 Income before tax 4,573 1,523 Income tax expense ($4,573 ， .333) Net income $ 3,050 400 Financial Accounting 6/e Solutions Manual (20-30 min.) E 6-12 Gross Profit Company Percentage Inventory Turnover $12,459 $7,105 Coca-Cola = 63.7% = 6.0 times $19,564 ($1,055 + $1,294) / 2 $41,074 $150,255 Wal-Mart = 21.5% = 7.3 times $191,329 ($19,793 + $21,442) / 2 $21,076 $12,650 Intel = 62.5% = 6.8 times $33,726 ($1,478 + $2,241) / 2 $3,395 $972 Estée = 77.7% = 1.8 times Lauder $4,367 ($513 + $546) / 2 These ratio values explain the merchandising philosophies of these companies. Wal-Mart has the lowest gross profit percentage (21.5%) and the fastest rate of inventory turnover (7.3 times per year). This makes sense for a volume discounter. Estée Lauder has the highest gross profit percentage (77.7%) and the slowest inventory turnover (1.8 times per year). High markups and low turnover go hand-in-hand. Coca-Cola’s and Intel’s ratios fall between these extremes. These ratio data suggest that Intel is the most profitable company of this group. 401 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10 min.) E 6-13 Billions Sales……………………………………………... $45.7 Cost of goods sold Beginning inventory……………………….. $ 5.5 Purchases……………………………………. 33.2 Goods available…………………………….. 38.7 Ending inventory…………………………… (6.6) Cost of goods sold…………………………. 32.1 Gross profit…………………………………….. $13.6 $13.6 Gross profit percentage = = 29.8% $45.7 $32.1 Inventory turnover = = 5.3 times ($5.5 + $6.6) / 2 402 Financial Accounting 6/e Solutions Manual (10-15 min.) E 6-14 Year ended January 31, 20X4: Millions $7,020 Budgeted cost of goods sold ($6,500 ， 1.08)………... Budgeted ending inventory…………………………….. 2,200 Budgeted goods available………….…………………… 9,220 Actual beginning inventory…………………………….. (1,900) Budgeted purchases…………………………………….. $7,320 403 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10-15 min.) E 6-15 Beginning inventory……………………… $ 48,000 Net purchases……………………………… 136,000 Goods available……….…………………... 184,000 Cost of goods sold: Net sales revenue……………………… $200,000 Less estimated gross profit of 40%… (80,000) Estimated cost of goods sold………... 120,000 Estimated cost of inventory destroyed.. $ 64,000 Another reason managers use the gross profit method to estimate ending inventory is to test the reasonableness of ending inventory from (a) the perpetual inventory records or (b) a physical count. 404 Financial Accounting 6/e Solutions Manual (10-15 min.) E 6-16 Allergan, Inc. Income Statement Year Ended September 30, 20X5 20X4 Sales revenue $149,000 $122,000 Cost of goods sold: Beginning inventory $27,000 $12,000 Net purchases 72,000 66,000 Goods available 99,000 78,000 Ending inventory (16,000) (27,000)* Cost of goods sold 83,000 51,000 Gross profit 66,000 71,000 Operating expenses 30,000 20,000 Net income $ 36,000 $ 51,000 *$18,000 + $9,000 = $27,000 Allergan actually performed poorly in 20X5, compared to 20X4, with net income down from $51,000 to $36,000. The understatement of inventory at the end of 20X4 caused 20X4 net income to be understated. Then this same error caused 20X5 net income to be overstated, giving the false impression that profits were higher in 20X5. In reality, net income was down in 20X5. 405 Chapter 6 Merchandise Inventory and Cost of Goods Sold (10 min.) E 6-17 Millions INCOME STATEMENT Sales revenue………………………………………….. $18,144 Cost of goods sold ($5,456 – $100)………………... 5,356 Gross profit…………………………………………….. $12,788 (5-10 min.) E 6-18 a. Use average cost. b. Use FIFO. c. Use FIFO. d. Use any method. They all produce the same results because costs are stable. e. Buy inventory late in the year. f. Company is using LIFO. 406 Financial Accounting 6/e Solutions Manual (20-30 min.) E 6-19 Req. 1 Actual cost of goods sold = 1. From purchase in December (30 @ $1,300)…….. $ 39,000 2. From purchase in June (50 @ $1,200)……………. 60,000 3. From purchase in February (20 @ $1,100)………. 22,000 4. From beginning inventory (30 @ $1,000)………... 30,000 Actual cost of goods sold……………………….. $151,000 Req. 2 Cost of goods sold with the additional year-end purchase (this would have avoided a LIFO liquidation) = 1. From purchase in December (60* @ $1,300)……. $ 78,000 2. From purchase in June (50 @ $1,200)……………. 60,000 3. From purchase in February (20 @ $1,100)………. 22,000 Cost of goods sold (with no LIFO liquidation). $160,000 _____ *Must purchase a total of 60 units in December to keep ending inventory at 40 units, which was the level of beginning inventory. 407 Chapter 6 Merchandise Inventory and Cost of Goods Sold (continued) E 6-19 Req. 3 The LIFO liquidation , Boosted gross profit by $9,000 ($160,000 – $151,000). , Cost the company $3,600 ($9,000 ， .40) in income tax. , Boosted net income by $5,400 ($9,000 – $3,600). , Was bad for the company because the additional income tax drained off valuable cash. Paying the added tax was not worth the boost in net income because the company would have to replenish its inventory anyway, so it’s better to go ahead and buy the goods before year end. That action would save the cash that was wasted on taxes. 408 Financial Accounting 6/e Solutions Manual (20-30 min.) E 6-20 Sales, gross profit, net income, the gross profit percentage, and inventory turnover showed the following trends: 20X7 20X6 20X5 Dollars in millions Sales $37.0 $35.9 $33.7 Cost of sales 29.7 28.1 26.3 Gross profit 7.3 7.8 7.4 Net income (net loss) (0.2) 0.4 0.5 Gross profit $7.3 $7.8 $7.4 = = .197 = .217 = .220 percentage $37.0 $35.9 $33.7 Inventory $29.7 $28.1 $26.3 = = 4.4 = 4.1 = 4.1 turnover ($7.1 + $6.4) / 2 ($6.5 + $7.1) / 2 ($6.4 + $6.5) / 2 The gross profit percentage dropped significantly while the rate of inventory turnover improved. This suggests that Zmart was having to discount its merchandise more and more just to sell the goods. The end result was a net loss in 20X7. Selling, general and administrative expenses increased significantly, which suggests that Zmart was having to advertise heavily in order to sell its inventory. 409 Chapter 6 Merchandise Inventory and Cost of Goods Sold Practice Quiz 1. d ($7,200 – $5,500 = $1,700) 2. b ($2,000 + $6,000 – $5,500 = $2,500) 3. a 4. c [(3,400 @ $10.75) + (100 @ $10.30) = $37,580] 5. d (3,400 @ $10.75 = $36,550) 6. a 7. d ($144,000 + $216,000 = $360,000) 8. c 9. c 10. c [$620,000 – ($70,000 + $400,000 – $40,000) = $190,000] 11. b ($10,000 + X – $15,000 = $90,000; X = $95,000) 12. c 13. d [($500,000 – $200,000) ， ($25,000 + $35,000) / 2] = 10 times 14. a Net sales = $480,000 ($490,000 – $10,000) COGS = $50,000 + ($230,000 + $20,000 – $6,000 – $4,000) – $40,000 = $250,000 GP% = ($480,000 – $250,000) / $480,000 = 47.9% 15. b $53,500 + $75,500 – $93,000 (1 – .30) = $63,900 16. b 17. a 410 Financial Accounting 6/e Solutions Manual Problems Group A (20-30 min.) P 6-1A Req. 1 Inventory…………………………………….. 9,580,000 Accounts Payable………………………. 9,580,000 Accounts Payable…………………………. 9,110,000 Cash………………………………………. 9,110,000 Cash………………………………………….. 4,700,000 Accounts Receivable……………………… 8,700,000 Sales Revenue…………………………… 13,400,000 Cost of Goods Sold………………………... 9,880,000 Inventory………………………………….. 9,880,000 [$6,300,000 + $1,360,000 + $1,920,000 + (10,000 units ， $30*)] _____ *$1,500,000 / 50,000 units = $30 per unit. Operating Expenses……………………….. 2,130,000 1,420,000 Cash ($2,130,000 ， 2/3)…………………. 710,000 Accrued Liabilities ($2,130,000 ， 1/3)... Income Tax Expense………………………. 556,000 Income Tax Payable…………………….. 556,000 [($13,400,000 – $9,880,000 – $2,130,000) ， .40 = $556,000] 411 Chapter 6 Merchandise Inventory and Cost of Goods Sold (continued) P 6-1A Req. 2 Inventory Beg. bal. 1,500,000 Purchases 9,580,000 COGS 9,880,000 End. bal. 1,200,000 Req. 3 Lord & Taylor - Atlanta Income Statement Year Ended January 31, 20X0 Sales revenue …………………………… $13,400,000 Cost of goods sold…………………….. 9,880,000 Gross profit……………………………… 3,520,000 Operating expenses…………………… 2,130,000 Income before tax……………………… 1,390,000 Income tax expense (40%)……………. 556,000 Net income………………………………. $ 834,000 412 Financial Accounting 6/e Solutions Manual (20-30 min.) P 6-2A Req. 1 The store uses FIFO. This is apparent from the flow of costs out of inventory. For example, the March 8 sale shows a unit cost of $19, which came from the beginning inventory. This is how FIFO, and only FIFO, works. Req. 2 Cost of goods sold: 27 $19 = $ 513 ， 23 19 = 437 ， 1 20 = 20 ， 25 20 = 500 ， $1,470 Sales 27 + 23 = 50 units ， $36 = $1,800 $2,762 1 + 25 = 26 units ， $37 = 962 Cost of goods sold……………………………………. (1,470) Gross profit……………………………………………... $1,292 Req. 3 $ 704 Cost of March 31 inventory (24 ， $21) + (10 ， $20). 413 Chapter 6 Merchandise Inventory and Cost of Goods Sold (20-30 min.) P 6-3A Req. 1 Inventory Begin. bal. (140 units @ $76) 10,640 Purchases: Dec. 3 (217 units @ $81) 17,577 12 ( 95 units @ $82) 7,790 18 (210 units @ $84) 17,640 Cost of goods sold 24 (248 units @ $87) 21,576 (696 units @ $?) ? Ending bal. (214 units @ $?) ? Cost of Goods Sold Ending Inventory Average cost 696 ， $82.6626* $57,533 214 ， $82.6626* $17,690 ____ *Average cost ($10,640 + $17,577 + $7,790 + $17,640 + $21,576) = = $82.6626 per unit (140 + 217 + 95 + 210 + 248) FIFO (140 @ $76) + (217 @ $81) + ( 95 @ $82) + (210 @ $84) + ( 34 @ $87) = $56,605 214 @ $87 = $18,618 LIFO (248 @ $87) + (210 @ $84) + ( 95 @ $82) + 140 @ $76 + (143 @ $81) = $58,589 (74 @ $81) = $16,634 414 Financial Accounting 6/e Solutions Manual (continued) P 6-3A Req. 2 LIFO’s cost of goods sold is highest for Hot Wheels because (a) the company’s prices are rising and (b) LIFO assigns to cost of goods sold the cost of the latest inventory purchases. When costs are rising, these latest inventory costs are the highest, and that makes cost of goods sold the highest under LIFO. Req. 3 Hot Wheels Motorcycles, Inc. Income Statement Month Ended December 31, 20XX Sales revenue (696 @ $130)…………………….. $90,480 Cost of goods sold……………………………….. 58,589 Gross profit………………………………………… 31,891 Operating expenses……………………………… 22,000 Income before income taxes……………………. 9,891 Income tax expense (40%)………………………. 3,956 Net income…………………………………………. $ 5,935 415 Chapter 6 Merchandise Inventory and Cost of Goods Sold (30-40 min.) P 6-4A Req. 1 (partial income statements Blockbuster Digital Images Income Statement Year Ended December 31, 20XX AVERAGE FIFO LIFO Sales revenue $11,200 $11,200 $11,200 Cost of goods sold 8,392 8,255 8,520 Gross profit $ 2,808 $ 2,945 $ 2,680 Computations of cost of goods sold: Average cost ($1,215 + $2,520 + $2,010 + $1,400 + $2,590) = = $3.3569 per unit (400 + 800 + 600 + 400 + 700) = $8,392 COGS at average cost = 2,500 ， $3.3569 FIFO COGS = (300 @ $3.00) + (900 @ $3.15) + (600 @ $3.35) + (400 @ $3.50) = $8,255 + (300 @ $3.70) LIFO COGS = (700 @ $3.70) + (400 @ $3.50) + (600 @ $3.35) + (800 @ $3.15) = $8,520 416 Financial Accounting 6/e Solutions Manual (continued) P 6-4A Req. 2 Use the FIFO method to report the highest net income because cost of goods sold is lowest (gross profit is highest) under FIFO when inventory costs are rising. 417 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-20 min.) P 6-5A LM Electronics should apply the lower-of-cost-or-market rule to account for inventories. The current replacement cost of ending inventory is less than LM’s actual cost, so LM must write the inventory down to current replacement cost, with the following journal entry: Cost of Goods Sold………… 1,500,000 Inventory………………….. 1,500,000 To write inventory down to market value. LM should report the following amounts in its financial statements: BALANCE SHEET Inventory ($8,900,000 – $1,500,000)…………….. $ 7,400,000 INCOME STATEMENT Cost of goods sold ($27,400,000 + $1,500,000). $28,900,000 Accounting conservatism is the reason to account for inventory at the lower of cost or market value. Conservatism directs accountants to write inventory down if cost appears unrealistically high. In this case conservatism comes into play because the current replacement cost (market value) of LM’s ending inventory is less than cost. Under the lower-of-cost-or-market rule, this requires a write-down of the inventory value to current replacement cost. Student responses may vary. 418 Financial Accounting 6/e Solutions Manual (20-30 min.) P 6-6A Req. 1 Hershey Target Millions Gross profit percentage: Sales…………………… $4,221 $36,362 Cost of sales………….. 2,471 25,295 Gross profit…………… $1,750 $11,067 Gross profit $1,750 $11,067 = 41.5% = 30.4% percentage: $4,221 $36,362 Inventory turnover: Cost of goods sold $2,471 $25,295 = Average inventory ($605 + $602) / 2 ($4,248 + $3,798) / 2 = 4.1 times = 6.3 times Req. 2 These statistics do not indicate which company should be more profitable. Hershey has a higher gross profit percentage, but Target turns its inventory over more rapidly. On one measure Hershey looks better; on the other measure Target is better. Another factor that makes it difficult to tell which company should be more profitable is that the gross profit percentage and inventory turnover do not take into account operating expenses. 419 Chapter 6 Merchandise Inventory and Cost of Goods Sold (25-30 min.) P 6-7A Req. 1 (estimate of ending inventory by the gross profit method) Beginning inventory……………………… $1,292,000 Purchases………………………………….. $6,585,000 Less: Purchase discounts………….. (149,000) Purchase returns……………… (8,000) Net purchases…………………………... 6,428,000 Goods available…………………………… 7,720,000 Cost of goods sold: Sales revenue…………………………… $8,657,000 Less: Sales returns…………………. (17,000) Net sales…………………………………. 8,640,000 Less: Estimated gross profit of 40%.. (3,456,000) Estimated cost of goods sold………... 5,184,000 Estimated cost of ending inventory…… $2,536,000 420 Financial Accounting 6/e Solutions Manual (continued) P 6-7A Req. 2 (income statement through gross profit) Kinko’s Income Statement (partial) Month of March, 20XX Sales revenue………………………….. $8,657,000 Less: Sales returns………………… (17,000) Net sales revenue…………………... 8,640,000 Cost of goods sold……………………. 5,184,000* Gross profit…………………………….. $3,456,000 _____ *Cost of goods sold: Beginning inventory………………………... $1,292,000 Purchases……………………... $6,585,000 Less: Purchases discounts. (149,000) Purchase returns……. (8,000) Net purchases……………………………….. 6,428,000 Goods available……………………………... 7,720,000 Less: Ending inventory……………………. (2,536,000) Cost of goods sold…………………………. $5,184,000 421 Chapter 6 Merchandise Inventory and Cost of Goods Sold (20-30 min.) P 6-8A Req. 1 $756,000 Cost of sales, budgeted ($720,000 ， 1.05).. + Ending inventory, budgeted………………... 80,000 = Cost of goods available……………………... 836,000 – Beginning inventory…………………………. (70,000) = Purchases, budgeted ……………………….. $766,000 Req. 2 Stop-n-Go Store Budgeted Income Statement Year Ended December 31, 20X4 $1,008,000 Sales ($960,000 ， 1.05)…………………….. 756,000 Cost of sales ($720,000 ， 1.05)…………… Gross profit…………………………………... 252,000 Operating expenses………………………… 102,000 Net income…………………………………… $ 150,000 422 Financial Accounting 6/e Solutions Manual (15-20 min.) P 6-9A Req. 1 (corrected income statements) Monaco Gemstones, Inc. Income Statement (adapted; amounts in thousands) Years Ended 2007, 2006, and 2005 2007 2006 2005 Net sales revenue……………... $1,412 $1,231 $1,138 Cost of goods sold: Beginning inventory……….. $ 249 $ 309 $ 234 Purchases…………………… 859 729 663 Goods available…………….. 1,108 1,038 897 Ending inventory…………… (311) (249) (309) Cost of goods sold………… 797 789 588 Gross profit…………………….. 615 442 550 Operating expenses…………... 500 437 420 Net income……………………… $ 115 $ 5 $ 130 423 Chapter 6 Merchandise Inventory and Cost of Goods Sold (continued) P 6-9A Req. 2 (net income and owner equity effects of inventory errors) Prior to correction: 2007 2006 2005 Net income for the year was Under by $20 million Over by $70 million Under by $50 million Req. 3 The corrections did not change total net income over the three-year period. The corrections made the company’s trend of net income look worse — with net income dropping sharply in 2006 and with 2007’s net income lower than net income in 2005.424 Financial Accounting 6/e Solutions Manual Problems Group B (20-30 min.) P 6-1B Req. 1 Inventory……………………………………. 11,500,000 Accounts Payable……………………… 11,500,000 Accounts Payable…………………………. 11,390,000 Cash………………………………………. 11,390,000 Cash…………………………………………. 5,300,000 Accounts Receivable……………………... 11,100,000 Sales Revenue………………………….. 16,400,000 Cost of Goods Sold.…………………….… 12,100,000 Inventory…………………………………. 12,100,000 [$6,300,000 + $3,250,000 + $1,950,000 + (10,000 units ， $60*)] _____ *$1,200,000 ， 20,000 units = $60 per unit Operating Expenses………………………. 4,000,000 3,200,000 Cash ($4,000,000 ， .80)………………... 800,000 Accrued Liabilities ($4,000,000 ， .20). Income Tax Expense……………………… 120,000 Income Tax Payable…………………… 120,000 [($16,400,000 – $12,100,000 – $4,000,000) ， .40 = $120,000] 425 Chapter 6 Merchandise Inventory and Cost of Goods Sold (continued) P 6-1B Req. 2 Inventory Beg. bal. 1,200,000 Purchases 11,500,000 COGS 12,100,000 End. bal. 600,000 Req. 3 Toys ―Я‖ Us, Inc., San Antonio Store Income Statement Year Ended January 31, 20X5 Sales revenue ……………………………… $16,400,000 Cost of goods sold……………………….. 12,100,000 Gross profit………………………………… 4,300,000 Operating expenses………………………. 4,000,000 Income before tax…………………………. 300,000 Income tax expense (40%)………………. 120,000 Net income…………………………………. $ 180,000 426 Financial Accounting 6/e Solutions Manual (20-30 min.) P 6-2B Req. 1 The store uses FIFO. This is apparent from the flow of costs out of inventory. For example, the August 3 sale shows unit cost of $40, which came from the beginning inventory. This is how FIFO, and only FIFO, works. Req. 2 Cost of goods sold: 16 $40 = $ 640 ， 34 40 = 1,360 ， 9 41 = 369 ， 32 41 = 1,312 ， 8 41 = 328 ， $4,009 = $3,500 Sales 16 + 34 = 50 units ， $70 = 3,528 $7,028 9 + 32 + 8 = 49 units ， $72 Cost of goods sold………………………………………. 4,009 Gross profit……………………………………………….. $3,019 Req. 3 $2,027 Cost of August 31 inventory (18 ， $42) + (31 ， $41).. 427 Chapter 6 Merchandise Inventory and Cost of Goods Sold (20-30 min.) P 6-3B Req. 1 Inventory Begin. bal. ( 73 units @ $23) 1,679 Purchases: Mar. 4 (113 units @ $27) 3,051 12 ( 81 units @ $29) 2,349 19 (167 units @ $32) 5,344 Cost of goods sold 25 ( 44 units @ $35) 1,540 (418 units @ $?) ? Ending bal. ( 60 units @ $?) ? Cost of Goods Sold Ending Inventory Average cost 418 ， $29.2113* = $12,210* 60 ， $29.2113* = $1,753 ____ *Average cost ($1,679 + $3,051 + $2,349 + $5,344 + $1,540) = = $29.2113 per unit (73 + 113 + 81 + 167 + 44) FIFO (73 @ $23) + (113 @ $27) + (81 @ $29) + (151 @ $32) = $11,911 (44 @ $35) + (16 @ $32) = $2,052 LIFO (44 @ $35) + (167 @ $32) + (81 @ $29) + (113 @ $27) + (13 @ $23) = $12,583 (60 @ $23) = $1,380 428 Financial Accounting 6/e Solutions Manual (continued) P 6-3B Req. 2 LIFO results in the highest cost of goods sold for Calico Corners because (a) the company’s prices are rising and (b) LIFO assigns to cost of goods sold the cost of the latest inventory purchases. When costs are rising, these latest inventory costs are the highest, and that makes cost of goods sold the highest under LIFO. Req. 3 Calico Corners, Inc. Income Statement Month Ended March 31, 20XX $25,080 Sales revenue (418 ， $60)……………………….. Cost of goods sold……………………………….. 12,210 Gross profit………………………………………… 12,870 Operating expenses……………………………… 8,000 Income before income taxes……………………. 4,870 Income tax expense (40%)………………………. 1,948 Net income…………………………………………. $ 2,922 429 Chapter 6 Merchandise Inventory and Cost of Goods Sold (30-40 min.) P 6-4B Req. 1 (partial income statements) Schlosstein Restaurant Supply Income Statement Year Ended December 31, 20XX AVERAGE FIFO LIFO Sales revenue $134,970 $134,970 $134,970 Cost of goods sold 74,864 74,350 75,335 Gross profit $ 60,106 $ 60,620 $ 59,635 Computations of cost of goods sold: Average cost ($4,900 + $2,115 + $8,085 + $63,000 + $4,250) = = $7.4864 per unit (700 + 300 + 1,100 + 8,400 + 500) = $74,864 COGS at average cost = 10,000 ， $7.4864 FIFO COGS = (700 @ $7.00) + (300 @ $7.05) + (1,100 @ $7.35) + (7,900 @ $7.50) = $74,350 LIFO COGS = (500 @ $8.50) + (8,400 @ $7.50) + (1,100 @ $7.35) = $75,335 430 Financial Accounting 6/e Solutions Manual (continued) P 6-4B Req. 2 Use the LIFO method to minimize income tax because goods sold is highest (gross profit is lowest) under LIFO when inventory costs are rising. 431 Chapter 6 Merchandise Inventory and Cost of Goods Sold (15-30 min.) P 6-5B Rebecca Arden Cosmetics should apply the lower-of-cost-or- market rule to account for inventories. The current replacement cost of ending inventory is less than Arden’s actual cost, so Arden must write the inventory down to current replacement cost, with the following journal entry: Cost of Goods Sold……………… 600,000 Inventory………………………... 600,000 To write inventory down to market value. Arden should report the following amounts in its financial statements: BALANCE SHEET $ 4,300,000 Inventory ($4,900,000 ,$600,000)……………….. INCOME STATEMENT Cost of goods sold ($29,600,000 + $600,000)…. $30,200,000 Accounting conservatism is the reason to account for inventory at the lower of cost or market value. Conservatism directs accountants to write inventory down if cost appears unrealistically high. In this case conservatism comes into play because the current replacement cost (market value) of Arden’s ending inventory is less than cost. Under the lower-of-cost-or-market rule, this requires a write-down of the inventory value to current replacement cost. Student responses may vary. 432 Financial Accounting 6/e Solutions Manual (20-30 min.) P 6-6B Req. 1 Company A Company B Millions Millions Gross profit percentage: Sales……………………. $191 $1,412 Cost of sales…………... 150 817 Gross profit……………. $ 41 $ 595 Gross profit $41 $595 = 21.5% = 42.1% percentage: $191 $1,412 Inventory turnover: Cost of goods sold $150 $817 = Average inventory ($21 + $20) / 2 ($311 + $269) / 2 = 7.3 times = 2.8 times Req. 2 Company A is Easy Buy. Company B is Grant Thornton. The lower gross profit percentage (21.5% versus 42.1%), coupled with faster inventory turnover (7.3 times versus 2.8 times), suggests a discounter (Easy Buy). The higher gross profit percentage (42.1%) and lower inventory turnover (2.8 times) suggest the specialty retailer (Grant Thornton). 433 Chapter 6 Merchandise Inventory and Cost of Goods Sold (25-30 min.) P 6-7B Req. 1 (estimate of ending inventory by the gross profit method) Beginning inventory……………………... $ 367,000 Purchases…………………………………. $5,789,000 Less: Purchase discounts…………. (26,000) Purchase returns……………... (12,000) Net purchases…………………………. 5,751,000 Goods available………………………….. 6,118,000 Cost of goods sold: Sales revenue………………………….. $6,430,000 Less: Sales returns………………… (250,000) Net sales…………………………….….. 6,180,000 Less: Estimated gross profit of 40%. (2,472,000) Estimated cost of goods sold………. 3,708,000 Estimated cost of ending inventory…... $2,410,000 434 Financial Accounting 6/e Solutions Manual (continued) P 6-7B Req. 2 (income statement through gross profit) Procter and Gamble Company Income Statement (partial) Month of July, 20XX Sales revenue………………………………. $6,430,000 Less: Sales returns……………………... (250,000) Net sales revenue……………………….. 6,180,000 Cost of goods sold………………………… 3,708,000* Gross profit…………………………….…… $2,472,000 _____ *Cost of goods sold: Beginning inventory…………………………... $ 367,000 Purchases………………………. $5,789,000 Less: Purchases discounts... (26,000) Purchase returns…….. (12,000) Net purchases…………………………………. 5,751,000 Cost of goods available for sale……………. 6,118,000 Less: Ending inventory………………………. (2,410,000) Cost of goods sold……………………………. $3,708,000 435 Chapter 6 Merchandise Inventory and Cost of Goods Sold (20-30 min.) P 6-8B Req. 1 $759,000 Cost of sales, budgeted ($690,000 ， 1.10)…. + Ending inventory, budgeted………………….. 45,000 = Cost of goods available……………………….. 804,000 – Beginning inventory…………………………… (35,000) = Purchases, budgeted …………………………. $769,000 Req. 2 Ben’s Short Stop Store Budgeted Income Statement Year Ended December 31, 20X5 $990,000 Sales ($900,000 ， 1.10)……………………….….. 759,000 Cost of sales ($690,000 ， 1.10)……………….… Gross profit………………………………………… 231,000 Operating expenses……………………………… 81,000 Net income…………………………………….…… $150,000 436 Financial Accounting 6/e Solutions Manual (15-20 min.) P 6-9B Req. 1 (corrected income statements) McPhail Corporation Income Statement (adapted; amounts in billions) Years Ended 20X2, 20X1, and 20X0 20X2 20X1 20X0 Net sales revenue……………... $36 $33 $30 Cost of goods sold: Beginning inventory……….. $ 5 $ 2 $ 2 Purchases…………………… 25 24 22 Goods available…………….. 30 26 24 Ending inventory…………… (4) (5) (2) Cost of goods sold………… 26 21 22 Gross profit…………………….. 10 12 8 Operating expenses.. …………. 10 9 8 Net income……………………… $ -0- $ 3 $ -0- 437 Chapter 6 Merchandise Inventory and Cost of Goods Sold (continued) P 6-9B Req. 2 (net income and owner equity effects of inventory errors) Prior to correction of the error: 20X2 20X1 20X0 Net income for the year was Over by $1 billion Under by $2 billion Over by $1 billion Req. 3 The corrections did not change total net income over the three-year period. The corrections drastically altered the trend of net income — from a smooth pattern to a sharp increase in 20X1 followed by a sharp drop in 20X2. 438 Financial Accounting 6/e Solutions Manual Decision Cases (50-60 min.) Decision Case 1 Reqs. 1 and 2 Income statements without year-end purchase of 1,000 units at $160: Caledonia Corporation Income Statement FIFO LIFO Sales revenue $1,200,000 $1,200,000 Cost of goods sold: Beginning inventory $ 0 $ 0 Purchases (6,000 units) 745,000 745,000 Goods available 745,000 745,000 Less ending inventory (1,000 units) (160,000)* (100,000)* Cost of goods sold 585,000 645,000 Gross profit 615,000 555,000 Operating expenses 200,000 200,000 Income before income tax expense 415,000 355,000 Income tax expense 166,000 ($415,000 ， .40) 142,000 ($355,000 ， .40) Net income $ 249,000 $ 213,000 _____ *Computations: Ending inventory: FIFO 1,000 units at $160 = $160,000 LIFO 1,000 units at $100 = $100,000 Chapter 6 Merchandise Inventory and Cost of Goods Sold 439 (continued) Decision Case 1 Reqs. 1 and 2 Income statements with year-end purchase of 1,000 units at $160: Caledonia Corporation Income Statement FIFO LIFO Sales revenue $1,200,000 $1,200,000 Cost of goods sold: Beginning inventory $ 0 $ 0 Purchases (7,000 units) 905,000* 905,000* Goods available 905,000 905,000 Less ending inventory (2,000 units) (320,000)* (221,250)* Cost of goods sold 585,000 683,750 Gross profit 615,000 516,250 Operating expenses 200,000 200,000 Income before income tax expense 415,000 316,250 Income tax expense 166,000 ($415,000 ， .40) _________ 126,500 ($316,250 ， .40) Net income $ 249,000 $ 189,750 _____ *Computations: Purchases: $745,000 + (1,000 units at $160) = $905,000 Ending inventory: FIFO 2,000 units at $160 = $320,000 LIFO (1,000 units at $100) + (1,000 units at $121.25) = $221,250 440 Financial Accounting 6/e Solutions Manual (continued) Decision Case 1 Reqs. 1 and 2 The year-end purchase of inventory has no effect on net income under the FIFO method because the cost of the units purchased at year end go into ending inventory, not into cost of goods sold. Under LIFO, the year-end purchase of inventory directly affects net income because the cost of units purchased at year end go directly into cost of goods sold. If the company uses LIFO and purchases the inventory at year end, net income will decrease from $213,000 to $189,750. Req. 3 Under LIFO, a year-end purchase can be made in order to manage net income. Chapter 6 Merchandise Inventory and Cost of Goods Sold 441 (15-25 min.) Decision Case 2 Req. 1 LIFO reports the most recent costs of inventory (as cost of goods sold) in the income statement. As a result, the inventory cost reported in the balance sheet is made up of the older unit costs of goods purchased. In terms of the relative currency of the unit costs, the balance sheet amount is ―inaccurate.‖ FIFO reports the most recent costs of inventory (as the inventory balance) in the balance sheet. The income statement therefore reports an amount of cost of goods sold that is made up of the older unit costs of goods purchased. In this sense, the cost of goods sold figure is ―inaccurate.‖ Req. 2 Yes, the authors would prefer managers to be conservative in accounting for inventory — for all the reasons accountants use conservatism. We would prefer to be pleasantly surprised rather than negatively shocked. Req. 3 In year 1, Outback’s conservatism decreases the inventory amount and the amount of income reported in the financial statements. In year 2, the conservative approach produces the opposite effect on income. As Outback sells its inventory at current (high) prices, it matches against revenue the lower carrying amounts of inventory that resulted from last year’s write-down. The result is higher reported income in year 2 than Outback would be reporting if the company had not written inventory down in year 1. 442 Financial Accounting 6/e Solutions Manual Ethical Issue Req. 1 Changing accounting methods year after year hurts a company’s credibility, which makes it hard for the company to borrow or raise money from outside investors. The question that arises about such a company is: What does the business have to hide? Req. 2 The consistency principle is violated. Req. 3 Creditors and outside investors could be harmed by accounting changes year after year. It becomes difficult to tell which changes in the business are real and which changes result from the shift in the accounting method. Outsiders find it difficult to track the company’s operating results and financial position over time. Ultimately the company suffers because lenders will not want to loan it money, and outsiders will be reluctant to invest money in the business. This may deprive the entity of needed funds and hurt its chances for success or survival. Chapter 6 Merchandise Inventory and Cost of Goods Sold 443 Focus on Financials: YUM! Brand (30 min.) Req. 1 Millions December 27, December 28, 2003 2002 Inventory (from the balance sheet). $67 $63 Req. 2 Note 2: Summary of significant accounting policies states, ―We value our inventories at the lower of cost (computed on the first-in, first-out method) or net realizable value.‖ Req. 3 Millions Rearranging, Beginning Inventory Food and paper expense (2003 income statement) $2,300 + Purchases + Ending inventory (at Dec. 27, 2003) 67 = Goods available = Goods available 2,367 – Ending Inventory – Beginning inventory (at Dec. 28, 2002) (63) = Cost of goods sold = Purchases $2,304 (food and paper expense) 444 Financial Accounting 6/e Solutions Manual (continued) Focus on Financials: YUM! Brands Req. 4 The gross profit percentage deteriorated a bit during 2003: 2003 2002 Company sales…………….. $7,441 100.0% $6,891 100.0% Food and paper expense…. 2,300 30.9% 2,109 30.6% Gross profit…………………. $5,141 69.1% $4,782 69.4% Req. 5 YUM’s rate of inventory turnover is fast. Cost of goods sold (Food and paper expense) $2,300 = = 35 times Average inventory ($67 + $63) / 2 Few companies turn their inventory over 35 times per year. Chapter 6 Merchandise Inventory and Cost of Goods Sold 445 Focus on Analysis: Pier 1 Imports (30-40 min.) Req. 1 a. Inventory on hand at year end, $374 million. b. Cost of goods sold, $1,087 million. Millions c. Purchases = Ending inventory………………… $ 374 + Cost of goods sold………………. 1,087 – Beginning inventory………….…. (333) = Purchases…………………………. $1,128 Req. 2 Purchases is most directly related to cash flow because Pier 1 must pay for the inventory it purchases. Req. 3 Millions Accounts payable at the end of 2003 (this is the beginning balance for 2004)…………………. $ 77 + Purchases during 2004 (Req. 1)……………………. 1,128 – Cash payments on account during 2004…………. (X) = Accounts payable at the end of 2004……………… $ 101 Cash payments (X) = $1,104 million 446 Financial Accounting 6/e Solutions Manual (continued) Focus on Analysis: Pier 1 Imports Req. 4 Pier 1 values inventories ―at the lower of average cost or market, cost being determined on a weighted average inventory method.‖ Req. 5 (Dollars in millions) 2004 2003 Gross profit $1,868 – $1,087 $1,755 – $1,001 = percentage $1,868 $1,755 = 41.8% = 43.0% Inventory $1,087 $1,001 = turnover ($374 + $333) / 2 ($333 + $275) / 2 = 3.075 times = 3.293 times Gross profit percent decreased from the prior year. Inventory turnover also decreased. Overall, Pier 1’s combination of gross profit percent and rate of inventory turnover deteriorated during 2004. These data may explain why net income dropped in 2004. Chapter 6 Merchandise Inventory and Cost of Goods Sold 447 Appendix A (10 min.) CP 6A-1 Purchases……………………………………. 100,000 Accounts Payable……………………….. 100,000 Accounts Receivable………………………. 140,000 Sales Revenue…………………………… 140,000 End-of-period entries: Cost of Goods Sold………………………… 20,000 Inventory (beginning balance)………… 20,000 Inventory (ending balance)……………….. 30,000 Cost of Goods Sold……………………... 30,000 Cost of Goods Sold………………………… 100,000 Purchases………………………………… 100,000 448 Financial Accounting 6/e Solutions Manual (10 min.) CP 6A-2 1. Inventory Cost of Goods Sold 20,000 20,000 20,000 30,000 30,000 100,000 90,000 2. Cost of goods sold: Beginning inventory…………………………… $ 20,000 Purchases……………………………………….. 100,000 Goods available………………………………… 120,000 Ending inventory………………………………. (30,000) Cost of good sold……………………………… $ 90,000 3. Parkland Technologies Income Statement 20XX Sales revenue……………………………………… $140,000 Cost of goods sold (from Req. 2)………………. 90,000 Gross profit…………………………………….….. $ 50,000 Chapter 6 Merchandise Inventory and Cost of Goods Sold 449 (10-15 min.) E 6A-1 Cost of goods available for sale: Oct. 1 Beginning inventory…………. 5 @ $160 = $ 800 8 Purchase……………………….. 4 @ 160 640 15 Purchase……………………….. 11 @ 170 1,870 26 Purchase……………………….. 5 @ 180 900 31 Goods available for sale……. 25 $4,210 Ending inventory Cost of goods sold 1. Specific unit cost (4 @ $160) + (4 @ $170) = $1,320 $4,210 – $1,320 = $2,890 2. Average cost $4,210 ， 25 = average = $1,347 $4,210 – $1,347 = $2,863 unit cost of $168.40* ， 8 3. FIFO (5 @ $180) + (3 @ $170) = $1,410 $4,210 – $1,410 = $2,800 4. LIFO 8 @ $160 = $1,280 $4,210 – $1,280 = $2,930 _____ *$4,210 ， 25 units = $168.40 per unit 450 Financial Accounting 6/e Solutions Manual (20-25 min.) E 6A-2 Journal DATE ACCOUNT TITLES AND EXPLANATION DEBIT CREDIT 1. Purchases ($640 + $1,870 + $900)……… 3,410 Accounts Payable……………………… 3,410 2. Accounts Receivable (17 @ $300)……… 5,100 Sales Revenue………………………….. 5,100 3. Cost of Goods Sold………………………. 800 Inventory (beginning balance)………. 800 Inventory [ending balance: (8 @ $160)].. 1,280 Cost of Goods Sold……………………. 1,280 Cost of Goods Sold………………………. 3,410 Purchases……………………………….. 3,410 Cost of Goods Sold Beginning inventory Ending inventory 1,280 800 (5 ， $160) Purchases 3,410 2,930 4. Cost of goods sold: Beginning inventory……………………….…… $ 800 Purchases………………………………………... 3,410 Goods available…………………….…………… 4,210 Ending inventory……………………………….. (1,280) Cost of goods sold……………………………... $2,930 Chapter 6 Merchandise Inventory and Cost of Goods Sold 451 (20-30 min.) P 6A-1 Req. 1 and 2 Periodic System Cost of goods sold: $2,000 Beginning inventory (50 ， $40)……………. Purchases: $3,280 80 ， $41 = 756 4,036 18 ， 42 = Goods available……………………………… 6,036 Ending inventory (FIFO) $1,066 26 ， $41 = 756 (1,822) 18 ， 42 = Cost of goods sold………………………….. $4,214 Sales $3,500 16 + 34 = 50 units ， $70 = 3,888 $7,388 9 + 35 + 10 = 54 units ， $72 = Cost of goods sold………………………….. 4,214 Gross profit…………………………………… $3,174 452 Financial Accounting 6/e Solutions Manual (15-20 min.) P 6A-2 Req. 1 (journal entries) (In thousands) Purchases………………………………………… 2,900 Accounts Payable………………………….…. 2,900 878 Cash ($4,390 ， .20)………………………………. 3,512 Accounts Receivable ($4,390 ， .80)………….. Sales Revenue………………………………… 4,390 End-of-period entries: Cost of goods sold……………………………… 370 Inventory (beginning balance)………………………….. 370 Inventory (ending balance)…………………………………. 560 Cost of Goods Sold…………………………... 560 Cost of Goods Sold……………………………... 2,900 Purchases………………………………….…... 2,900 Chapter 6 Merchandise Inventory and Cost of Goods Sold 453 (continued) P 6A-2 Req. 2 (financial statement amounts) BALANCE SHEET (In thousands) Current assets: Inventory……………………………….. $ 560 INCOME STATEMENT Sales revenue………………………….…. $4,390 Cost of goods sold………………………. 2,710* Gross profit……………………………….. $1,680 _____ *$370 + $2,900 – $560 = $2,710 454 Financial Accounting 6/e Solutions Manual