# What is gross profit under each method?

Flying Tomato sells a snowboard, WhiteOut, that is popular with snowboard enthusiasts. Presented below is information relating to Flying Tomato’s purchases of WhiteOut snowboards during September.                                                                         During the same month, 121 WhiteOut snowboards were sold at \$170 each. Flying Tomato uses a periodic inventory system.

Date Explanation Units Unit Cost Total Cost

Sept. 1 Inventory 25 \$ 100 \$ 2,500

Sept. 12 Purchases 45 106 4,770

Sept. 19 Purchases 24 110 2,640

Sept. 26 Purchases 50 112 5,600

Totals 144 \$ 15,510

Instructions:

(a) Compute the ending inventory at September 30 and cost of goods sold using the FIFO and LIFO

methods. Prove the amount allocated to cost of goods sold under each method.

(b) For both FIFO and LIFO, calculate the sum of ending inventory and cost of goods sold. What do you notice about the answers you found for each method?

(c) What is gross profit under each method?

(d) Which method results in a larger amount reported for assets on the balance sheet? Which results in a larger amount reported for owner’s equity on the balance sheet?
Part 2 is to answer, in paragraph form, the following question:

FIFO and LIFO are the two most common cost flow assumptions made in costing inventories. The amounts assigned to the same inventory items on hand may be different under each cost flow assumption. If a company has no beginning inventory, explain the difference in ending inventory values under the FIFO and LIFO cost bases when the price of inventory items purchased during the period have been (1) increasing, (2) decreasing, and (3) remained constant.

1. Course: Principles of Accounting: ACC-101-1505

Assignment: Assignment 5

This Assignment has TWO parts.

Part 1:

Fluffer Company incurred the following costs.

1. Sales tax on factory machinery purchased, \$7,000.
1. Painting of and lettering on truck immediately upon purchase, \$800.

Installation and testing of factory machinery, \$2,500.

1. Real estate broker’s commission on land purchased \$4,500.

Insurance premium paid for first year’s insurance on new truck \$930.

1. Cost of landscaping on property purchased, \$9,200.
1. Cost of paving parking lot for new building, \$18,700.
1. Cost of clearing, draining, and filling land, \$14,400.
1. Architect’s fees on self-constructed building, \$11,000.

Instructions:

a) Indicate to which account Trudy would debit each of the costs.

b) Explain why item 1 is not debited to an expense account.

c) Explain why items 7 and 8 are debited to different accounts.

Part 2:

Princess Company publishes a monthly fashion magazine, Tiara. Subscriptions to the magazine cost \$30 per year. During October 2014, Princess sells 12,000 subscriptions beginning with the November issue. Princess prepares financial statements quarterly and recognizes subscription revenue earned at the end of the quarter. The company uses the accounts Unearned Subscription Revenue and Subscription Revenue.

Instructions:

(a) Prepare the entry in October for the receipt of the subscriptions.

(b) Prepare the adjusting entry at December 31, 2014, to record sales revenue recognized in December 2014.

(c) Indicate the effect that the transactions in (a) and (b) have on assets, liabilities, and stockholders’ equity.

(d) Prepare the adjusting entry at March 31, 2015, to record sales revenue recognized in the first quarter of 2015.

(e) Indicate how the unearned subscription revenue is reported in the 3/31/15 financial statements, including the amount.

1. Course: Principles of Accounting: ACC-101-1505

Assignment: Assignment 2

On December 31, 2014 the adjusted trial balance of the Yellin Personnel Agency shows the following selected data:

Accounts Receivable, \$8,000

Service Revenue, \$60,000

Interest Expense, \$10,500

Interest Payable, \$3,500

Utilities Expense, \$4,800

Accounts Payable, \$2,700

Analysis indicates that adjusting entries were made for (a) \$8,000 of employment commission revenue earned but not billed, (b) \$3,500 of accrued but unpaid interest, and (c) \$2,700 of utilities expense accrued but not paid.

Instructions

(a) Prepare the closing entries at December 31, 2014.

(b) <intentionally removed>

(c) Enter the adjusted trial balance data in T-accounts. Post the entries in (a) and (b) and rule and balance the accounts.

(d) Prepare the entries to record (1) the collection of the accrued commission on January 8, (2) payment of the utility bill on January 10, and (3) payment of all the interest due (\$4,000) on January 15.

(e) Post the entries in (d) to the temporary accounts.

(f) What is the interest expense for the month of January 20

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