Chapter 5: 4PSA_1 (page 266)
Refer to the information in Problem 5-3A and assume the periodic inventory system is used.
Required
1. Compute the cost of goods available for sale and the number of units available for sale.
The business entity has1,800 units available for sale that are acquired at acost of $77,200.
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Refer to the information in QS 5-4 and assume the perpetual 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.)
Use the data in Exercise 5-3 to prepare comparative income statements for the month of January for Laker Company similar to those shown in Exhibit 5.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)
Where is the amount of merchandise inventory disclosed in the financial statements?
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.
Identify the inventory costing method best described by each of the following separate statements. Assume a period of increasing costs.
______1. Yields a balance sheet inventory amount often markedly less than its replacement cost.
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