9:59 all 81% 9. I inventory is valued at cost and me price ever is steadily rising, wrch method or costing-FIFO or average cost-yields the lower annual income tax expense? Explain. 10. Can a company change its method of costing inventory? Explain. 11. Because of imperfections, an item of merchandise cannot be sold at its normal selling price. How should this item be valued for financial statement purposes? 12. How do companies disclose their method of determining the cost of the inventory and their method of valuing it under ASPE and IFRS? 13. The inventory at the end of the year was understated by $13,500. (a) Did the error cause an overstatement or an understatement of the gross profit for the year? (b) Which items on the balance sheet at the end of the year were overstated or under- stated as a result of the error (ignore income taxes)? 14. Funtime Co. sold merchandise to Jaffe Company on December 31, FOB shipping point. If the merchandise is in transit on December 31, the end of the fiscal year, which company would report the merchandise in its financial statements? Explain. 15. A manufacturer shipped merchandise to a retailer on a consignment basis. If the merchandise is unsold at the end of the period, in whose inventory should the merchandise be included? PRACTICE EXERCISES PE 6-1 Inventory cost flow methods EE 6-1 p. 307 PE 6-2 Cost flow methods For each of the following three businesses, which costing method would better reflect the business's economic reality? a. Art dealer b. Automobile manufacturer Specialty liquor store Four identical units of Item KL3 are purchased during June, as shown below. Item KL3 Units Jun. 3 Purchase 1 Cost Per Unit $20.00 Total Cost $20.00 6-2 . 300 10 Purchase 2 35.00 70.00 19 Purchase 40.00 Total 4.00 $134.00 $35.50 $134 units PE 6-3 Perpetual inventory using FIFO Average cost per unit Assume that one unit is sold on June 23 for $55. Determine the gross profit for June and the ending inventory on June 30 using (a) the first-in, first-out (FIFO) method and (b) the average cost method. Beginning inventory, purchases, and sales for Item VX48 are as follows: Jul. 1 Inventory Sele Purchase 100 units at $2 90 units EE 0-3 p. 311 III = 15 25 125 unit at $12 Assuming a perpetual inventory system and using the first-in, first-out (FIFO) method, determine (a) the cost of goods sold on July 25 and (b) the inventory on July 31. O