aes4003-im06-p28
TRANSCRIPT
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CALCULATION OF COST OF GOODS PURCHASED
PurchasesLess: Purchase returns and allowances
Purchase discounts
Net purchases
Add: Freight-in
Cost of goods purchased
$360,000
10,000
350,000
5,000
355,000
$7,0003,000
CALCULATION OF COST OF GOODS SOLD
Inventory, January 1
Cost of goods purchased
Cost of goods available for sale
Inventory, December 31
Cost of goods sold
$ 40,000
355,000
395,000
50,000
345,000
ILLUSTRATION 6-2COST OF GOODS SOLD
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Net Sales
Cost of Goods Sold
Operating Expenses
Net Income
Purchases=+=
Purchase returns and allowancesPurchase discountsNet purchases
Freight-inCost of goods purchased
Beginning inventory+==
Cost of goods purchasedCost of goods available for saleEnding inventoryCost of goods sold
Net Sales=
Cost of goods soldGross profit
Selling expenses (includingFreight-out)
+=
Administrative expensesTotal operating expenses
Gross profit=
Total operating expensesNet income
Sales=
Sales returns and allowancesSales discountsNet sales
Gross Profit
ILLUSTRATION 6-3COMPONENTS OF THE INCOME STATEMENT FOR AMERCHANDISING COMPANY USING PERIODICINVENTORY SYSTEM
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ILLUSTRATION 6-4COSTING ENDING INVENTORY UNDER FIFO, LIFO,AND AVERAGE COST METHODSPERIODIC SYSTEM
Your company provided the following data for the year:
January 1.....March 15 purchase.....
June 20 purchase.....
October 25 purchase.....
Units and goods available.....
Ending inventory (December 31) consists of 110 units.
Complete the costing of ending inventory under FIFO, LIFO, andaverage cost.
8060
100
90
330
$15.0016.00
17.50
18.00
$1,200960
1,750
1,620
$5,530
Units Unit Cost Total Cost
Cost of goods available for sale.....
LESS: Ending Inventory (FIFO)Dates: Units CostOctober 25 (90 $18.00)
June 20 (20 $17.50)==
$1,620350 1,970
$5,530
FIFO LIFO AVERAGE
$5,530 $5,530
1,680
1,844
LESS: Ending Inventory (LIFO)Dates: Units CostJan 1 (80 $15.00)Mar 15 (30 $16.00)
==
$1,200480
LESS: Ending Inventory (Wt. Aver.)Wt. Aver. cost Units = Unit CostUnit Cost Ending Units
$5,530 330 = $16.76 (r)
$16.76/unit 110 units (r)
Cost of Goods Sold..... $3,560 $3,850 $3,686
Income Statement Effects
Balance
SheetEffects
(r) rounded
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ILLUSTRATION 6-5EFFECTS OF INVENTORY ERRORS
Cost of GoodsSold Net Income
Beginning inventory understated
Beginning inventory overstated
Ending inventory understated
Ending inventory overstated
Understated
Overstated
Overstated
Understated
Overstated
Understated
Understated
Overstated
Inventory Error
SELF-CORRECTING ERRORS OVER TWO PERIODS
CORRECT TOTAL INCOME OVER TWO PERIODS
becomes
offsets
Current Period
An errorseffect on income
this period
EndingInventory
Error
Next Period
BeginningInventory
Error
Reverse effecton net incomein this period
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Net
Sales
Estimated
Gross Profit
Estimated Cost
of Goods Sold =
Step 1
Cost of GoodsAvailable for Sale
Estimated Costof Goods Sold
Estimated Cost ofEnding Inventory
=
Step 2
a. Estimated Gross ProfitRate....40%
Estimate ending inventory costusing the Gross Profit Method.
Net sales $400,000
Less: Estimatedgross profit
(400,000 40% (G)) 160,000
Beginning inventory $ 50,000
(G)
Estimated cost ofending inventory $ 10,000
Step 1:
(G)
Step 2:
Gross Profit Method
G Given
b. Net Sales....$400,000
c. Beginning Inventory....$50,000
d. Goods Purchased....$200,000
Estimated cost ofgoods sold $240,000
Cost of goodspurchased 200,000 (G)
Cost of goodsavailable for sale $250,000
Less: Estimated costof goods sold 240,000
ILLUSTRATION 6-6THE GROSS PROFIT METHOD
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Goods Available
for Sale at Retail
Net
Sales
Ending Inventory
at Retail
Goods Availablefor Sale at Cost
Goods Availablefor Sale at Retail
Cost-to-RetailRatio
Ending Inventoryat Retail
Cost-to-RetailRatio
Estimated Cost ofEnding Inventory
a. Beginning inventory andpurchases at cost and retail
Beg. inv.Purchases
b. Sales at retail....$80,000
Estimate ending inventory costusing the Retail Method.
Cost Retail
$15,00045,000
$25,00075,000
Beg. inv. $15,000 $25,000
Cost Retail
Purchases 45,000 75,000
GoodsAvailable $60,000 100,000
Net salesEstimated inventoryat retail
80,000
$20,000
(G) (G)
(G) (G)
Cost-to-retail ratio$60,000 $100,000 60%
Estimated inventory atcost $20,000 60% $12,000
(G)
Retail Method
G Given
ILLUSTRATION 6-7THE RETAIL INVENTORY METHOD
=
Step 1
=
Step 2
=
Step 3
(1)
(2)
(3)