# PROBLEM 5-5B, Problem 6-2B, Problem 6-3B

PROBLEM 5-5B, Problem 6-2B, Problem 6-3B

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PROBLEM 5-5B

Prepare a correct detailed multiple-step income statement.  Assume a tax rate of 25%.

 WRIGHT COMPANY Income Statement For the Month Ended December 31, 2014 Sales Revenues Account title Amount Account title Amount Account title Amount Net Sales Cost of goods sold Gross profit Amount Operating Expenses Account title Amount Account title Amount Account title Amount Account title Amount Account title Amount Account title Amount Account title Amount Total operating expenses Amount Income from operations Amount Other revenues and gains Account title Amount Other expenses and losses Account title Amount Amount (Total) Income before income taxes Income tax expense Net Income

P5-5B

An inexperienced accountant prepared this condensed income statement for

Wright Company, a retail firm that has been in business for a number of years.

WRIGHT COMPANY

Income Statement

For the Year Ended December 31, 2014

Revenues

Net sales \$952,000

Other revenues 16,000

968,000

Cost of goods sold 548,000

Gross profit 420,000

Operating expenses

Selling expenses 160,000

104,000

264,000

Net earnings \$156,000

As an experienced, knowledgeable accountant, you review the statement and determine

the following facts.

1. Net sales consist of sales \$972,000, less freight-out on merchandise sold \$20,000.

2. Other revenues consist of sales discounts \$12,000 and interest revenue \$4,000.

3. Selling expenses consist of salespersons’ salaries \$88,000; depreciation on equip-

ment \$4,000; sales returns and allowances \$46,000; advertising \$12,000; and sales

commissions \$10,000. All compensation should be recorded as Salaries and Wages

Expense.

4. Administrative expenses consist of office salaries \$54,000; dividends \$14,000; utili-

ties \$13,000; interest expense \$3,000; and rent expense \$20,000, which includes

prepayments totaling \$2,000 for the first month of 2015. The utilities represent

utilities paid. At December 31, utility expense of \$3,000 has been incurred but not

paid.

Problem 6-2B

(a) Determine the Cost of Goods Available for Sale

 Date Explanation Units Unit Cost Total Cost Total

(b) Determine the ending inventory and cost of goods sold under each of the assumed cost flow methods.  Prove the accuracy of the cost of goods sold under FIFO and LIFO.

FIFO

 (1) Ending Inventory (2) Cost of Goods Sold Date Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Amount Amount Total Amount Total Amount Cost of Goods Sold Amount

 Proof of Cost of Goods Sold (FIFO) Date Units Unit Cost Total Cost Amount Amount Amount Amount Amount Amount Amount Amount Total Amount Total Amount

LIFO

 (1) Ending Inventory (2) Cost of Goods Sold Date Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Amount Amount Total Amount Total Amount Cost of Goods Sold Amount

 Proof of Cost of Goods Sold (LIFO) Date Units Unit Cost Total Cost Amount Amount Amount Amount Amount Amount Amount Amount Total Amount Total Amount

AVERAGE COST (Round to the nearest decimal, i.e., \$1.01)

 (1) Ending Inventory (2) Cost of Goods Sold Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Total Amount Total Amount Cost of Goods Sold Amount

(c) Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

P6-2B

Lifetime Distribution markets classic children’s books. At the beginning of June, Lifetime had in beginning inventory 1,200 books with a unit cost of \$3. During June, Life- time made the following purchases of books.

June     3          4,000 @ \$3                 June 29            4,000 @ \$6

June 18            7,500 @ \$5

During June, 10,500 books were sold. Lifetime uses a periodic inventory system.

Instructions

(a)  Determine the cost of goods available for sale.

(b)  Determine (1) the ending inventory and (2) the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold under the FIFO and LIFO methods. (Note: For average-cost, round cost per unit to three decimal places.)

(c)  Which cost flow method results in (1) the highest inventory amount for the balance sheet and (2) the highest cost of goods sold for the income statement?

Problem 6-3B

(a) Determine the Cost of Goods Available for Sale

 Date Explanation Units Unit Cost Total Cost Total

(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost flow methods (FIFO, LIFO and average-cost).  Prove the accuracy of the cost of goods sold under each method.

FIFO

 (1) Ending Inventory (2) Cost of Goods Sold Date Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Amount Amount Total Amount Total Amount Cost of Goods Sold Amount

 Proof of Cost of Goods Sold (FIFO) Date Units Unit Cost Total Cost Amount Amount Amount Amount Amount Amount Amount Amount Total Amount Total Amount

LIFO

 (1) Ending Inventory (2) Cost of Goods Sold Date Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Amount Amount Total Amount Total Amount Cost of Goods Sold Amount

 Proof of Cost of Goods Sold (LIFO) Date Units Unit Cost Total Cost Amount Amount Amount Amount Amount Amount Amount Amount Total Amount Total Amount

AVERAGE COST (Round to the nearest decimal, i.e., \$1.01)

 (1) Ending Inventory (2) Cost of Goods Sold Units Unit Cost Total Cost Cost of goods available for sale Amount Amount Amount Less: ending inventory Amount Total Amount Total Amount Cost of Goods Sold Amount

(c) Which cost flow method results in the lowest inventory amount for the balance sheet? The lowest cost of goods sold for the income statement?

P6-3B

Smythe Company Inc. had a beginning inventory of 200 units of Product ERV at a cost of \$6 per unit. During the year, purchases were:

Jan 24              800 units at \$7            Aug. 19   600 units at \$9

Apr 12             400 units at \$8            Nov. 30   350 units at \$10

Smythe Company uses a periodic inventory system. Sales totaled 1,900 units.

Instructions

(a) Determine the cost of goods available for sale.

(b) Determine the ending inventory and the cost of goods sold under each of the assumed cost

flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goods sold

under the FIFO and LIFO methods. (Round average unit cost to three decimal places.)

(c)  Which cost flow method results in the lowest inventory amount for the balance sheet?

The lowest cost of goods sold for the income statement?

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