JUST MISSING PART B Numbers 1-3

Assume that Speed World Cycles uses a perpetual inventory system. (See the data provided.)

Purchase Date	Units Purchased	Unit Cost	Total Cost
Jul. 1	2	$4,950	$ 9,900
Jul. 22	3	5,000	15,000
Aug. 3	3	5,100	15,300
	8		$40,200

Instructions

1. Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions.

1. Average cost.

Closing inventory = 20,100

Cost of goods sold = 20,100

2. FIFO.

Closing inventory = 20,300

Cost of goods sold = 19,900

3. LIFO.

Closing inventory = 19,900

Cost of goods sold = 20,300

Show the number of units and the unit costs of each layer comprising the cost of goods sold and ending inventory.

2. Using the cost figures computed in part a, answer the following questions:

1. Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income for the current year? Would this always be the case? Explain.

2. Which of the three cost flow assumptions minimizes the income taxes owed by Speed World Cycles for the year? Would you expect this usually to be the case? Explain.

3. May Speed World Cycles use the cost flow assumption that results in the highest net income for the current year in its financial statements, but use the cost flow assumption that minimizes taxable income for the current year in its income tax return. Explain.