6-72

Edwards Company began operations in February 2019. Edwards accounting records provide the following data for the remainder of 2019 for one of the items the company sells:

Activity	Units	Purchase Price (per unit)	Sale Price (per unit)
Beginning inventory	9	$58
Purchase 1, Feb. 15	6	72
Purchase 2, Mar. 22	8	80
Sale 1, Apr. 9	10		$150
Purchase 3, May 29	9	86
Sale 2, July 10	15		150
Purchase 4, Sept. 10	8	96
Sale 3, Oct. 15	12		150

Edwards uses a periodic inventory system. All purchases and sales were for cash.

Required:

1.

Compute cost of goods sold and the cost of ending inventory using FIFO.

2.

Compute cost of goods sold and the cost of ending inventory using LIFO.

3.

Compute cost of goods sold and the cost of ending inventory using the average cost method.

4.

Prepare the journal entries to record these transactions assuming Edwards chooses to use the FIFO method.

5.

Conceptual Connection: Which method would result in the lowest amount paid for taxes?

chpapter 6 mastery

After going through the accounting records of Dolfin Corporation in detail, the auditor made a list of observations. You have been asked to review the effect of these observations.

For each observation, use checkmarks to identify which items on the income statement are overstated or understated. If none of these items is affected by the observation, check the No Effect box.

Observations

Sales revenue

Cost of Goods Sold

Gross Profit

Operating Expenses

Income from Operations

No Effect

Overstated

Understated

Overstated

Understated

Overstated

Understated

Overstated

Understated

Overstated

Understated

Office supplies expense was included in administrative expenses.

While the company accountant was on vacation, the cost of each sale was not recorded for sales revenue transactions.

Sales revenue tax collected on each sale was credited to Cost of Goods Sold.

Credit card processing fees were debited to Cost of Goods Sold.

All freight costs were charged to Delivery Expense regardless of the terms of sale.

You work for a CPA firm that has been hired by Widget Tek Inc., a merchandising company that is getting ready to expand. The president of Widget Tek Inc. is concerned with obtaining a loan for the expansion and wants to be sure that all the financial statements accurately reflect the companys accounting records.

As preparation for this assignment, you have been asked to review the effects of changing prices on three inventory costing methods: LIFO, FIFO, and average cost.

Identify the scenarios and inventory methods that result in the highest and lowest values for each item listed. Enter Highest, Lowest, or leave the box blank.

	Cost of Goods Sold	Ending Inventory	Net Income
Average cost, when prices are rising
FIFO, when prices are falling
LIFO, when prices are falling
Average cost, when prices are falling
LIFO, when prices are rising
FIFO, when prices are rising