The owner of Fardan Stereo Sales showed the following adjusted trial balance at December 31, 2020:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Account Account ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Balance*Cash ................................................................................................................................... 16,000Accounts receivable ......................................................................................................... 27,000Merchandise inventory ......................................................................................................... ?Prepaid rent ...................................................................................................................... 36,000Store fixtures .................................................................................................................. 117,000Accumulated depreciation, store fixtures...................................................................... 82,000Trademark .......................................................................................................................... 3,000Accounts payable ............................................................................................................ 18,000Unearned sales revenue .................................................................................................. 4,000Notes payable, due in 2023 ........................................................................................... 22,000Mikel Fardan, capital ...................................................................................................... 61,000Mikel Fardan, withdrawals ............................................................................................ 44,000Sales ............................................................................................................................... 449,000Sales discounts ................................................................................................................. 6,000Cost of goods sold................................................................................................................. ?Delivery expense .............................................................................................................. 5,000Rent expense .................................................................................................................. 92,000Salaries expense .......................................................................................................... 109,000Interest expense .............................................................................................................. 2,000Depreciation expense ..................................................................................................... 8,000*Assume normal account balances.

The owner, Mikel Fardan, is analyzing the effect of the various merchandise inventory costing methods on his financial statements and has prepared the following schedule:

Required

1. Calculate the merchandise inventory values at December 31, 2020, under each inventory costing method shown in the schedule above.

2. Prepare a single-step income statement (showing one line each for net sales, cost of goods sold, operating expenses, and interest expense) for the year ended December 31, 2020, along with a balance sheet at December 31, 2020, assuming:

a. FIFO

b. Moving weighted average

Analysis Component:

3. Does the schedule above reflect rising costs for merchandise inventory or falling costs? Explain how you know.

4. Based on your results in Part 2, which method should the owner use if he wants to:

a. Maximize profit?

b. Maximize assets?

Transcribed Image Text:

Moving Weighted Average FIFO Merchandise inventory, December 31, 2019. Purchases. Merchandise inventory, December 31, 2020. Cost of goods sold. 12,000 159,000 12,000 159,000 152,000 148,000