ACCT5001_Accounting Principles_2009 Semester 1_Week 8 Sem 1 2009 Solutions for Out-of-Class Study.docVIP

ACCT5001 Week 8 Solutions for Out-of-Class Study Chapter 6 Q 6 The primary basis of accounting for inventories is cost in accordance with the cost principle. The major objective of accounting for inventories is the proper determination of net profit in accordance with the matching principle Q 8 Actual physical flow may be impractical because many items are indistinguishable from one another (e.g. Petrol purchased at different prices stored in the same tank). Actual physical flow may be inappropriate because management may be able to manipulate net profit through specific identification of items sold. Q 11 (a) FIFO. (b) Weighted average cost. (c) LIFO. BRIEF EXERCISE 6-5 (a) FIFO would result in the highest net profit. (b) FIFO would result in the highest ending inventory. (c) LIFO would result in the lowest income tax expense (because it would result in the lowest net profit). (d) Weighted average cost would result in the most stable income over a number of years because it averages out any big changes in the cost of inventory. EXERCISE 6-1 Ending inventory — physical count $297 000 1. No effect — title passes to purchaser upon shipment when terms are FOB delivery point 0 2. No effect — title does not transfer to First until goods are received 0 3. Add to inventory: title passed to First when goods were shipped 17 000 4. Add to inventory: title remains with First until purchaser receives goods 35 000 5. The goods did not arrive prior to year-end. The goods, therefore, cannot be included in the inventory (44 000) Correct inventory $305 000  EXERCISE 6-8 Cost Net realisable value Lower of Cost and net realisable value Cameras Minolta $ 850 $ 780 $ 780 Canon 900 912 900 Total 1750 1692 Light Meters Vivitar 1500 1320 1320 Kodak 1610 1890 1610 Total 3110 3210 Total inventory $4860 $4902 $ 4610  P6.4A (a) RED ROBIN INC. Condensed Income Stat