Week 8 Acc 290
Juliana Borges
Connie Robin Gibson
XACC/290
June 9, 2013
BE5-1:
A. $181,500
B. $41,200
C. $38,000
D. $17,900
E. $8,500
F. $63,400
BE5-2: Pocras Company buys merchandise on account from Wedell Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies.
Pocras Company:
Accounts Receivable: Debit = $900, Credit = $900.
Cost of Goods Sold: Debit = $590, Credit = $590.
BE6-5: In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The company uses the periodic method.
The cost of goods sold is $240 less when FIFO is used then when LIFO is used. This is the amount that is the phantom profit. It is considered to be the “phantom profit” because when using FIFO it matches the current selling prices to the old inventory costs. In order for the company to replace the units they sold, they will have to pay the higher current price of $8 per unit.
BE6-7: Olsson Video Center accumulates the following cost and market data at
December 31.
Inventory Categories Cost Data Market Data
Cameras $12,500 $13,400
Camcorders 9,000 9,500
DVDs 13,000 12,200
Compute the lower-of-cost-or-market valuation for Olsson inventory.
Solution: The lower value for each inventory type is: cameras $12,500, camcorders $9,000, and DVDs $12,200.
Connie Robin Gibson
XACC/290
June 9, 2013
BE5-1:
A. $181,500
B. $41,200
C. $38,000
D. $17,900
E. $8,500
F. $63,400
BE5-2: Pocras Company buys merchandise on account from Wedell Company. The selling price of the goods is $900 and the cost of the goods sold is $590. Both companies use perpetual inventory systems. Journalize the transactions on the books of both companies.
Pocras Company:
Accounts Receivable: Debit = $900, Credit = $900.
Cost of Goods Sold: Debit = $590, Credit = $590.
BE6-5: In its first month of operation, Moraine Company purchased 100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained. Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The company uses the periodic method.
The cost of goods sold is $240 less when FIFO is used then when LIFO is used. This is the amount that is the phantom profit. It is considered to be the “phantom profit” because when using FIFO it matches the current selling prices to the old inventory costs. In order for the company to replace the units they sold, they will have to pay the higher current price of $8 per unit.
BE6-7: Olsson Video Center accumulates the following cost and market data at
December 31.
Inventory Categories Cost Data Market Data
Cameras $12,500 $13,400
Camcorders 9,000 9,500
DVDs 13,000 12,200
Compute the lower-of-cost-or-market valuation for Olsson inventory.
Solution: The lower value for each inventory type is: cameras $12,500, camcorders $9,000, and DVDs $12,200.