ACC 113 Lecture Notes - Lecture 31: Deferral, Income Statement, Equity Method

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coralimpala133

6 Jan 2021

School

Tunxis Community College

Department

Accounting

Course

ACC 113

Professor

Tinone

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Document Summary

Which cfa to use depends on which financial statement is deemed more important. With lifo you have the most up to date cost of goods sold, and therefore lifo is considered to give a better measure of income than fifo. Fifo gives a better measure of ending inventory. Fifo presumes you"re selling earliest merch first, and therefore what you have left in the ending inventory is the most recent purchases, and up to date cost. If company wants to record high profits on its financial statements, they will want low. Cgs, therefore they would want to use fifo for financial reporting. For tax accounting, a company would want to low profits, and therefore a high cgs, so they would want to use lifo. Companies can usually use both depending on the above, except with inventory. Lifo conformity rule, if a company uses lifo for tax reporting, they must use.

Related Questions

Background: This is a continuation of the activities at TECHNOGYM in January, 2017. As in past activities, TECHNOGYM uses a Jan. 1 â Dec. 31 financial year.

Exercise for Inventory:

TECHNOGYM uses a periodic inventory system for its normal operations. Following are the unadjusted account balances as of Dec. 31, 2016 for all accounts related to sales and inventory of TechTone products.

Account Debit Credit

Accounts Receivable 17,607,500

Allowance for Doubtful Accounts 20,000

Purchases 85,832,500

Inventory 2,500,000

TechTone Sales Revenue 134,500,000

TechTone Sales Returns 2,017,500

Cost of TechTone Equipment Sold 0

Upper management is contemplating changing the method used to report the cost of goods sold. They will choose the method (either FIFO or DVLIFO) that maximizes operating cash flow. The general ledger has historically been kept on a FIFO basis. Following is the inventory purchases information for 2016:

Purchases for 2016 (normal operations)
Beginning:	5,000	units @	$500	each
Purchases:
Apr-May	40,000	units @	$500	each
Jun-Jul	35,000	units @	$505	each
Aug-Sep	48,500	units @	$515	each
Oct	24,000	units @	$520	each
Nov-Dec	20,000	units @	$535	each

Year-End Physical Inventory Count	38,000	units

Note: For full credit, you must show documentation for both DVLIFO and FIFO calculations, with indication and reasoning for your choice.

Requirement 1: Develop a detailed schedule showing the calculation of Ending Inventory and Cost of Goods Sold using FIFO for 2016.

Requirement 2: Show the adjusting journal entry(ies) (if any) that is/are needed on Dec. 31, 2016 related to FIFO inventory. Remember to show the journal entry in proper form!

Requirement 3: Develop a detailed schedule showing the calculation of Ending Inventory and Cost of Goods Sold using DVLIFO for 2016. Hint: DVLIFO adjustments are calculated at the end of the year, using annual layersânot based on each individual purchase. TECHNOGYM used 1.07 as its DVLIFO index.

DV LIFO	Ending Inventory at Year-End Cost	Index	Ending Inventory at Base-Yr Cost	Inventory Layers at Base-Yr Cost	Inventory Layers at Acq.-Yr Cost	Ending Inventory at DV LIFO Cost	LIFO Reserve Adjustment
2015

2016
2016

Requirement 4: Show the adjusting journal entry(ies) (if any) that would be needed on Dec. 31, 2016 if management decides to adopt the DVLIFO inventory method. Remember to show the journal entry in proper form!

Requirement 5: Using the table below, show the amounts that would appear on indicated line items of the Income Statement and Balance Sheet under the two methods.

		FIFO Method	DVLIFO Method
Income Statement	Cost of TechTone Equipment Sold

Balance Sheet	Inventory

Which method gives higher net income?

Which method gives higher assets?

limekangaroo380

I accidentally did the chapter 6 serial problem instead of thisworksheet, and it is due today... Please, please, please, help. Iam a good 4.0 student that simply made an idiotic mistake. Thanksin advance for any help.

During January, acompany that uses a perpetual inventory system had beginninginventory, purchases, and sales as follows:
Units Unit cost

Beggininginventory 100 10

Jan 5purchased 40 12

Jan 10sold 60

Jan 15purchased 70 13

Jan 25sold 50

** The selling priceper unit is $20.

1. Using theperpetual inventory system, calculate thetotal cost of goods sold for January and cost of the company'sJanuary 31^st inventory for the followingmethods. Show all your work using the formatused in the text!

a) FIFO

b) LIFO

c) Weighted average

d) Prepare journal entries for the events listed in thequestion using the amounts calculated using in (a) FIFOmethod.

2. Using theperiodic inventory system, calculate the costof goods sold for January and cost of the company's January31^st inventory for the followingmethods. Show all your work usingthe format provided in the appendix of the chapter in thetext!

a) FIFO

b) LIFO

c) Weighted average

3. A company madethe following purchases during the year:

Jan 10: 15 units @360 each

Mar 25: 25 units@390 each

April 25: 10 units@ 420 each

July 30: 20 units @450 each

Oct 10: 15 units @480 each

On December 31,there were 28 units in ending inventory. These 28 units consistedof 1 from the January 10 purchase, 2 from the March 15 purchase, 5from the April 25 purchase, 15 from the July 30 purchase, and 5from the October 10 purchase. Using perpetual inventory system,calculate the cost goods sold and ending inventory for the yearusing the specific identification method.Show all your work using the format providedin the text! (Note: Answers do not differusing the periodic inventory system)

4. Monitor Companyuses the LIFO method for valuing its ending inventory. Thefollowing financial statement information is available for itsfirst year of operation:

Income Statement

For the year endedDec 31

Sales 50,0000

Cost of goodssold 23,000

Grossprofit 27,000

Expenses 13,000

Income beforetaxes 14,000

Monitor's endinginventory using the LIFO method was $8,200. Monitor's accountantdetermined that, had the company used FIFO, the ending inventorywould have been $8,500.

a) Determine what the income beforetaxes would have been, had Monitor used the FIFO method ofinventory valuation instead of LIFO.

b) Whatwould be the difference in income taxes between LIFO and FIFO,assuming a 30% tax rate?

c) IfMonitor wanted to lower the amount ofincome taxes to be paid, which method would itchoose?

periwinklehare745

Produce a balance sheet for a company that distinguishes betweencurrent and non- current assets and liabilities.

Create a balance sheet from a trial balance.

Create a comparison of net income based on different methods ofinventory accounting.

Analyze a statement of cash flows and show where each line itemcan be found or

calculated from the other financial statements.

Prepare a full analysis of key financial ratios for a companyand state conclusions about

the financial strength of the company compared to industryratios.

PROJECT SUBMISSION PLAN

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Title: Creating a Balance Sheet and Evaluating Inventory
You will be provided with financial information about a fictionalcompany. You will have to determine what information is relevantfor Project Parts 1 and 2.

Task 1: Create a balance sheet from a trial balance for a givenscenario. Make sure you classify the accounts appropriately ascurrent or non-current. Click here to download the trialbalance.

Page 1

AC1420: Project

Project Part

Description/Requirements of Project Part

Evaluation Criteria

Task 2: Perform inventory valuations using LIFO, FIFO, andweighted average methods based on the following information.Explain the impact of each method on the cost of goods sold andending inventory.

The company imports microwaves from a supplier in China for theUS market. At the end of the first quarter, 100 microwaves are instock. The company purchased a total of 400 microwaves during thequarter at various prices: January: 100 units @ $75

February: 250 units @ $83
March: 50 units @ $87
The company had no inventory at the beginning of the quarter.
Task 3: If the companyâs goal is to maximize net income, whichevaluation method will you use and why?

Project Part 1 -Task 2:

Value of Ending Inventory of100 Units

Weighted AVG

LIFO

FIFO

Cost of Goods Sold (300 UnitsSold)

Weighted AVG

LIFO

FIFO

Create a BalanceSheet from the trial balance:
		Debits	Credits	Classification

	Cash	300,000.00		Current asset

	Sales		(10,000,000.00)	Income statement

	Cost of Goods Sold	7,000,000.00		Income statement

	Selling Expenses	500,000.00		Income statement

	Other income		(50,000.00)	Income statement

	Administrative expenses	350,000.00		Income statement

	Interest Expenses	12,500.00		Income statement

	Land	300,000.00		non-current asset

	Building	2,000,000.00		non-current asset

	Long Term bond payable		(550,000.00)	non-current liability

	Accrued Liabilities		(50,000.00)	current- liability

	Accumulated Depreciation Buildings		(250,000.00)	non-current asset

	Equipment	750,000.00		non-current asset

	Receivables	100,000.00		current asset

	Allowance for doubtful accounts		(7,500.00)	current asset

	Accumulated depreciation equipment		(125,000.00)	non-current asset

	Common Stock		(200,000.00)	equity

	Payables		(115,000.00)	current Liability

	Inventories	200,000.00		current asset

	Prepaid Expenses	50,000.00		current asset

	Retained Earnings		(215,000.00)	equity



		11,562,500.00	(11,562,500.00)

Assets		Equity and Liabilities

Current Assets		Current Liabilities





Total Current Assets	-	Total Current Liabilities	-




		Total long term Liabilities	-

Total property plant andequipment	-






		Total Equity	-


Total Assets	-	Total Equity and liabilities	-

pearlouse123

ACC 113 Lecture Notes - Lecture 31: Deferral, Income Statement, Equity Method

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