Chapter 5: 16QS (page 261)
Refer to the information in QS 5-10 and assume the periodic inventory system is used. Determine the costs assigned to ending inventory when costs are assigned based on the weighted average method. (Round per unit costs and inventory amounts to cents.)
Ending Inventory totals$340.
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Refer to the information in Problem 5-3A and assume the periodic inventory system is used
Required
Analysis Component
5. If the company’s manager earns a bonus based on a percentage of gross profit, which method of inventory costing will the manager likely prefer?
Identify the inventory costing method best described by each of the following separate statements. Assume a period of increasing costs.
_____3. Provides a tax advantage (deferral) to a corporation when costs are rising.
Question: BTN 5-3 Golf Challenge Corp. is a retail sports store carrying golf apparel and equipment. The store is at the end of its second year of operation and is struggling. A major problem is that its cost of inventory has continually increased in the past two years. In the first year of operations, the store assigned inventory costs using LIFO. A loan agreement the store has with its bank, its prime source of financing, requires the store to maintain a certain profit margin and current ratio. The store’s owner is currently looking over Golf Challenge’s preliminary financial statements for its second year. The numbers are not favorable. The only way the store can meet the required financial ratios agreed on with the bank is to change from LIFO to FIFO. The store originally decided on LIFO because of its tax advantages. The owner recalculates ending inventory using FIFO and submits those numbers and statements to the loan officer at the bank for the required bank review. The owner thankfully reflects on the available latitude in choosing the inventory costing method.
Required:
Is the action by Golf Challenge’s owner ethical? Explain.
Walberg Associates, antique dealers, purchased the contents of an estate for \(75,000. Terms of the purchase were FOB shipping point, and the cost of transporting the goods to Walberg Associates’s warehouse was \)2,400. Walberg Associates insured the shipment at a cost of \(300. Prior to putting the goods up for sale, they cleaned and refurbished them at a cost of \)980. Determine the cost of the inventory acquired from the estate.
Can a company change its inventory method each accounting period? Explain.
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