In: Accounting
please answe step by step for inventory record
ou work for a CPA firm that has been hired by Widget Tek Inc., a merchandising company that is getting ready to expand. The president of Widget Tek Inc. 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 Goods Sold | Ending Inventory | Net Income | |
---|---|---|---|
Weighted average, when prices are rising | |||
FIFO, when prices are rising | |||
LIFO, when prices are falling | |||
LIFO, when prices are rising | |||
Weighted average, when prices are falling | |||
FIFO, when prices are falling |
Inventory Records
Widget Tek Inc.’s original accountant accepted a position with another firm and left in early March. You have been asked to review the subsidiary inventory ledger record for Widget Tek Inc.’s main product for March.
Date |
Inventory |
||
---|---|---|---|
Quantity | Unit Cost | Total Cost | |
Mar. 1 | 850 | $98.00 | $83,300 |
1,275 | $95.00 | $121,125 | |
Mar. 8 | 650 | $98.00 | $63,700 |
Mar. 11 | 325 | $98.00 | $31,850 |
Mar. 14 | 325 | $98.00 | $31,850 |
780 | $103.00 | $80,340 | |
Mar. 22 | 260 | $98.00 | $25,480 |
Mar. 25 | 260 | $98.00 | $25,480 |
1,600 | $99.00 | $158,400 |
Study the inventory record for March and answer the questions that follow.
1. | Assuming that the product sells for $165 and that 70% 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. |
3. | Which inventory method is being used? |
Final Questions
In conversation with the president of Widget Tek Inc., you have learned that much of the company’s inventory consists of older Widget Tek Inc. models. These older models sell for less than the newer Widget Tek Inc. models, but customers strongly prefer the newer models. The company believes that the net realizable value of the older inventory is less than its value in the subsidiary inventory ledger.
Considering all of the information you have about Widget Tek Inc., answer the following questions.
1. | To better account for the older inventory, the president of Widget Tek Inc. wonders whether the 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 inventory not valued at cost? |