Assignment 6.1 Handout Homework

1Assignment 6.1 Handout1. Shepherd Cycles used the FIFO inventory method in 2010. Shepherd Cycles plans to continueusing the FIFO method in future years.RequirementR1. Which inventory principle is most relevant to Shepherd’s decision?2. Shepherd Cycles does not expect prices to change dramatically and wants to use a methodthat averages price changes.RequirementsR1. Which inventory method would best meet Shepherd’s goal?R2. What if Shepherd wanted to expense out the newer purchases of goods instead? Whichinventory would best meet that need?3. Innovation Cycles uses the FIFO inventory method. Innovation started March with 10 bicyclesthat cost $60 each. On March 16, Innovation bought 20 bicycles at $70 each. On March 31,Innovation sold 25 bicycles.RequirementR1. Prepare Innovation’s perpetual inventory record.4. Review the facts on Innovation Cycles in problem #3.RequirementR1. Prepare a perpetual inventory record for the LIFO method.5. Review the facts on Innovation Cycles in problem #3.RequirementR1. Prepare a perpetual inventory record for the average-cost method. Round average cost perunit to the nearest cent and all other amounts to the nearest dollar.6. Use the Innovation Cycles data in problem #3 to journalize.RequirementsR1. The March 16 purchase of inventory on account.R2. The March 31 sale of inventory on account. Innovation sold each bicycle for $120.R3. Cost of goods sold under FIFO on March 31.7. Use the Innovation Cycles data in problem #4 to journalize.RequirementsR1. The March 16 purchase of inventory on account.R2. The March 31 sale of inventory on account. Innovation sold each bicycle for $120.R3. The Cost of goods sold under LIFO on March 31.8. Use the Innovation Cycles data in problem #5 to journalize.RequirementsR1. The March 16 purchase of inventory on account.R2. The March 31 sale of inventory on account. Innovation sold each bicycle for $120.R3. The Cost of goods sold under average cost on March 31. 29. Refer to problems #3 through #8. After completing those exercises, answer the followingquestions:RequirementsR1. Which method of inventory accounting produced the lowest cost of goods sold?R2. Which method of inventory accounting produced the highest cost of goods sold?R3. If prices had been declining instead of rising, which inventory method would have producedthe highest cost of goods sold?10. Assume that a Queen Burger restaurant has the following perpetual inventory record forhamburger patties:RequirementsR1. At April 30, the accountant for the restaurant determines that the current replacement cost ofthe ending inventory is $515. Make any adjusting entry needed to apply the lower-of-cost-ormarketrule. Inventory would be reported on the balance sheet at what value on April 30?R2. Inventory would be reported on the balance sheet at what value if Queen uses the averagecostmethod?11. Boston Cycles’ inventory data for the year ended December 31, 2011, follow:Assume that the ending inventory was accidentally overstated by $2,200.RequirementR1. What are the correct amounts for cost of goods sold and gross profit?12. Refer back to the Boston Cycles’ inventory data in problem #11.RequirementR1. How would the inventory error affect Boston Cycles’ cost of goods sold and grossprofit for the year ended December 31, 2012, if the error is not corrected in 2011? 313. Electronic Company began the year with inventory of $55,800 and purchased $277,000 ofgoods during the year. Sales for the year are $476,000, and Electronic’s gross profit percentageis 45% of sales.RequirementR1. Compute the estimated cost of ending inventory by the gross profit method.14. Fancy Iron Industries began October with 54 units of iron inventory that cost $39 each. DuringOctober, the company completed the following inventory transactions:RequirementsR1. Prepare a perpetual inventory record for the inventory using FIFO.R2. Prepare a perpetual inventory record for the inventory using LIFO.R3. Prepare a perpetual inventory record for the inventory using average cost.R4. Determine the company’s cost of goods sold for October using FIFO, LIFO, and averagecost.R5. Compute gross profit for October using FIFO, LIFO, and average cost.15. Antique Carpets’ books show the following data (in thousands). In early 2013, auditors foundthat the ending inventory for 2010 was understated by $8 thousand and that the ending inventoryfor 2012 was overstated by $9 thousand. The ending inventory at December 31, 2011, wascorrect.RequirementsR1. Prepare corrected income statements for the three years.R2. State whether each year’s net income—before your corrections—is understated or overstatedand indicate the amount of the understatement or overstatement. 416. Gala Costumes estimates its inventory by the gross profit method. The gross profit hasaveraged 28% of net sales. The company’s inventory records reveal the following data (amountsin thousands):RequirementsR1. Estimate the December 31 inventory, using the gross profit method.R2. Prepare the December income statement through gross profit for Gala Costumes.17. A Futuristic Electronic Center began December with 91 units of inventory that cost $73 each.During December, the store made the following purchases:Futuristic uses the periodic inventory system, and the physical count at December 31indicates that 115 units of inventory are on hand.RequirementsR1. Determine the ending inventory and cost-of-goods-sold amounts for the December financialstatements under the average cost, FIFO, and LIFO methods.R2. Sales revenue for December totaled $24,000. Compute Futuristic’s gross profit for Decemberunder each method.R3. Which method will result in the lowest income taxes for Futuristic? Why? Which method willresult in the highest net income for Futuristic? Why?