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1、Chapter 6Merchandise Inventory and Cost of Goods Sold Check Points (10 min.) CP 6-1Nissan North AmericaBalance SheetDecember 31, 20X6Current assets:Inventory (300 $80).$24,000Nissan North AmericaIncome StatementYear Ended December 31, 20X6Sales revenue 700 ($80 + $40).$84,000Cost of goods sold (700
2、$80) 56,000Gross profit.$28,000(10-15 min.) CP 6-21.(Journal entries)Inventory.100,000Accounts Payable.100,000Cash ($140,000 .20)28,000Amounts Receivable ($140,000 .80).112,000Sales Revenue.140,000Cost of Goods Sold.60,000Inventory ($100,000 .60).60,0002.(Financial statements)BALANCE SHEETCurrent as
3、sets:Inventory ($100,000 $60,000).$40,000INCOME STATEMENTSales revenue$140,000Cost of goods sold. 60,000Gross profit$ 80,000(10 min.) CP 6-3 BillionsInventory6.4Cash.6.4Accounts Receivable.28.5Sales Revenue.28.5Cost of Goods Sold6.2Inventory.6.2Cash26.3Accounts Receivable.26.3(10 min.) CP 6-41.Inven
4、tory costs are increasing from $10 to $14 to $18 per unit.2.FIFO results in the highest cost of ending inventory ($360) because under FIFO the ending inventory is costed at the last costs incurred during the period. When costs are increasing, the last costs are the highest costs.FIFO results in the
5、lowest cost of goods sold. This occurs because the oldest costs are assigned to cost of goods sold. When costs are increasing, the oldest costs are the lowest.FIFO results in the highest gross profit because cost of goods sold, the expense, is the lowest. (Sales revenue is unaffected by the inventor
6、y costing method.)3.LIFO results in the lowest cost of ending inventory ($240) because under LIFO, the ending inventory is costed at the oldest costs. When costs are increasing, the oldest costs are the lowest costs.LIFO results in the highest cost of goods sold. This occurs because the last costs o
7、f the period are assigned to cost of goods sold. When costs are increasing, the last costs are the highest.LIFO results in the lowest gross profit because cost of goods sold, the expense, is the highest. (Sales revenue is unaffected by the inventory costing method.)(10 min.) CP 6-5 a b cAverage Cost
8、 FIFOLIFOCost of goods sold:Average (50 $15*)$750FIFO (10 $10) + (25 $14) + (15 $18)$720LIFO (25 $18) + (25 $14)$800Ending inventory:Average (10 $15*)$150FIFO (10 $18)$180LIFO (10 $10)$100_*Average cost=($100 + $350 + $450)=$15per unit(10 + 25 + 25)(10-15 min.) CP 6-6KinkosIncome StatementYear Ended
9、 December 31, 20XX Average FIFO LIFOSales revenue (600 $20)$12,000$12,000$12,000Cost of goods sold (600 $9.90*)5,940(100 $9) + (500 $10)5,900(600 $10) 6,000Gross profit6,0606,1006,000Operating expenses 4,000 4,000 4,000Net income$ 2,060$ 2,100$ 2,000_*Beginning inventory (100 $9.20).$ 920Purchases (
10、700 $10) 7,000Goods available.$7,920Average cost per unit $7,920 / 800 units$ 9.90(10 min.) CP 6-7KinkosIncome StatementYear Ended December 31, 20XX Average FIFO LIFOSales revenue (600 $20)$12,000$12,000$12,000Cost of goods sold (600 $9.90*)5,940(100 $9) + (500 $10)5,900(600 $10)_ 6,000Gross profit6
11、,0606,1006,000Operating expenses 4,000 4,000 4,000Income before income tax$ 2,060$ 2,100$ 2,000Income tax expense (40%)$ 824$ 840$ 800Method to minimize income tax expense.Method to maximize reported income (before tax).*From CP 6-6(5 min.) CP 6-8Lands End managers can delay purchases of inventory u
12、ntil the next year. Under LIFO, high inventory costs that would have been paid for inventory do not become expense as cost of goods sold in the current year. As a result, the current years income statement reports a higher net income than Lands End would have reported if the company had replaced inventory before year end.(5-10 min.) CP 6-9MillionsBALANCE SHEETCurrent assets:Inventories, at market (which is lower than cost).$ 330INCOME STATEMENTCost of goods sold $1,001 + ($333 $330)$1,004(10 min.) CP 6-101. FIFO2. LIFOG
