Ch6 Invetory Exercise.docVIP

Ch6 Inventory and Cost of Sales Exercises 6.1 Liberty Company reported the following January purchases and sales data for its only product. Date Activities Units Acquired at Cost Units Sold at Retail Jan.1 Beginning inventory 140 units @ $7.00= $980 Jan.10 Sales 90 units @ $15 Jan.20 Purchase 220 units @ $6.00= 1320 Jan.25 Sales 145units @ $15 Jan.30 Purchase 100 units @ $5.00= 500 Totals 460 units $2800 235 units Requirement: 1. Liberty uses a perpetual inventory system. Ending inventory consists of 225 units, 100 from the January 30 purchase, 80 from the January 20 purchase, and 45 form beginning inventory. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs to three decimals, but inventory balances to the dollar.) 2. Use the above data to prepare comparative income statements for the month of January for Liberty Company. Assume expenses are $1250, and that the applicable income tax rate is 30%. 1) Which method yields the highest net income? 2) Does net income using weighted average fall between that using FIFO and LIFO? 3) If costs were rising instead of falling, which method would yield the highest net income? Date Goods Purchased Cost of Goods Sold Inventory Balance 1/ 1 1/10 1/20 1/25 1/30 LIBERTY COMPANY Income Statements For Month Ended January 31 Specific Identification Weighted Average FIFO  LIFO Sales ( units x $ price) Cost of goods sold Gross profit Expenses Income before taxes Income tax expense (30%) Net income Exercise 6.2 Marlow Company uses a perpetual inventory system. It entered into the following calendar-year 2009 purchases and sales transactions. Date Activities Units Acquired at Cost Units Sold at