Changing Prices You work for a CPA firm that has been hired by Widget Tek, a merchandising company that is getting ready to expand. The president of Widget Tek is concerned with obtaining a loan for the expansion and wants to be sure that all the financial statements accurately reflect the company's 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 weighted average. 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 Merchandise Sold Ending Merchandise Inventory Net Income Weighted average, when prices are rising FIFO, when prices are rising LIFO, when prices are rising FIFO, when prices are falling Weighted average, when prices are falling LIFO, when prices are falling Inventory Records Widget Tek's original accountant accepted a position with another fim and left in early March. You have been asked to review the subsidiary inventory ledger record for Widget Tek's main product for March. Inventory Unit Cost Date Quantity Total Cost Mar. 1 850 S98.00 1,275 95.00 98.00 Mar. 8 Mar. 11 650 325 $83,300 121,125 63,700 31,850 31,850 98.00 Mar. 14 Mar. 22 Mar. 25 780 260 260 98.00 103.00 98.00 98.00 99.00 80,340 25,480 25,480 168,300 1,700 Study the inventory record for March and answer the questions that follow. 1. Assuming that the product sells for $150 and that 90% of sales are on account determine the gross profit from sales for March. $ 2. Making the same assumptions as in (1), determine the ending inventory cost for March. S 3. Which inventory method is being used? Final Questions In conversation with the president of Widget Tek, you have learned that much of the company's merchandise inventory consists of older Widget Tek models. These older models sell for less than the newer Widget Tek models, but customers strongly prefer the newer models. The company believes that the net realizable value of the older merchandise inventory is less than its value in the subsidiary inventory ledger. Considering all of the information you have about Widget Tek, answer the following questions. 1. To better account for the older merchandise inventory, the president of Widget Tek wonders whether the merchandise inventory should be valued using a different method. Do you agree, and why or why not? because will 2. Will a change in inventory method increase a company's net income on its financial statements? 3. When is merchandise inventory not valued at cost? Changing Prices You work for a CPA firm that has been hired by Widget Tek, a merchandising company that is getting ready to expand. The president of Widget Tek is concerned with obtaining a loan for the expansion and wants to be sure that all the financial statements accurately reflect the company's 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 weighted average. 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 Merchandise Sold Ending Merchandise Inventory Net Income Weighted average, when prices are rising FIFO, when prices are rising LIFO, when prices are rising FIFO, when prices are falling Weighted average, when prices are falling LIFO, when prices are falling Inventory Records Widget Tek's original accountant accepted a position with another fim and left in early March. You have been asked to review the subsidiary inventory ledger record for Widget Tek's main product for March. Inventory Unit Cost Date Quantity Total Cost Mar. 1 850 S98.00 1,275 95.00 98.00 Mar. 8 Mar. 11 650 325 $83,300 121,125 63,700 31,850 31,850 98.00 Mar. 14 Mar. 22 Mar. 25 780 260 260 98.00 103.00 98.00 98.00 99.00 80,340 25,480 25,480 168,300 1,700 Study the inventory record for March and answer the questions that follow. 1. Assuming that the product sells for $150 and that 90% of sales are on account determine the gross profit from sales for March. $ 2. Making the same assumptions as in (1), determine the ending inventory cost for March. S 3. Which inventory method is being used? Final Questions In conversation with the president of Widget Tek, you have learned that much of the company's merchandise inventory consists of older Widget Tek models. These older models sell for less than the newer Widget Tek models, but customers strongly prefer the newer models. The company believes that the net realizable value of the older merchandise inventory is less than its value in the subsidiary inventory ledger. Considering all of the information you have about Widget Tek, answer the following questions. 1. To better account for the older merchandise inventory, the president of Widget Tek wonders whether the merchandise inventory should be valued using a different method. Do you agree, and why or why not? because will 2. Will a change in inventory method increase a company's net income on its financial statements? 3. When is merchandise inventory not valued at cost
