Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements; apply lower-of-cost-or-market rule; calculate inventory turnover ratio. (LO 3, 4, 5, 6)

The following information is for Decades of Music Corporation for the year ended June 30, 2007.

At July 01, 2006:

- Cash amounted to \(\$ 27,000\).

- Beginning inventory was \(\$ 30,000\) (750 units at \(\$ 40\) each).

- Contributed capital was \(\$ 12,000\).

- Retained earnings was \(\$ 45,000\).

Transactions during 2006 and 2007:
- Purchased 825 units at \(\$ 41\) each - Purchased 375 more units at \(\$ 43\) each - Sold 1,150 units at \(\$ 56\) each - Paid \(\$ 8,500\) cash for operating expenses - Paid cash for income taxes at a rate of \(40 \%\) of net income \section*{Required}

a. Compute the cost of goods sold and ending inventory at June 30, 2007, using each of the following cost flow methods:
1. FIFO periodic 2. LIFO periodic 3. Weighted average cost periodic

b. For each method, prepare the balance sheet at June 30, 2007, a multiple-step income statement, and statement of cash flows for Decades for the fiscal year ended June 30, 2007.

c. What is income before taxes and net income after taxes under each of the three inventory cost flow assumptions? What observations can you make about net income from the analysis of the three methods?

d. At the end of the year, the current replacement cost of the inventory is \(\$ 33,000\). Indicate at what amount the company's inventory will be reported using the lowerof-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).

e. For each method, calculate the inventory turnover ratio and average days in inventory for the fiscal year ended June 30, 2007.