Week 5 Assignment

Brief Exercise 5-1
A) Sales = $181,500 (71,900+109,600)
B) Cost of Goods Sold= 41,200 (71,200-30,000)
C) Gross profit = 38,000 (108,000-70,000)
D) Operating expenses = 17,900 (30,000-12,100)
E) Operating expenses = 8,500 (38,000-29,500)
F) Net income = 63,400 (109,600-46,200)

Brief Exercise 5-2

Pocras Company Inventory 900 Accounts Payable 900 Wedell Company Accounts Receivable 900 Sales 900 Cost of Goods Sold 590 Inventory 590

Brief Exercise 6-5 Cost of goods sold under:

| LIFO | | FIFO | | | | | Purchases | $6 X 100 | | $6 X 100 | | $7 X 200 | | $7 X 200 | | $8 X 140 | | $8 X 140 | Cost of goods available for sale | $ 3,120 | | $ 3,120 | Less: Ending inventory | $ 1,160 | | $ 1,400 | Cost of goods sold | $ 1,960 | | $ 1,720 |

Since the cost of goods sold is $240 less under FIFO that is the amount of the phantom profit. It is referred to as “phantom profit” because FIFO matches current selling prices with old inventory costs. To replace the units sold the company will have to pay the current price of $8 per unit, rather than the $6 per unit which some of the units were priced at under FIFO. Profit under LIFO is more accurate of what the company can expect to earn in future periods.

Brief Exercise 6-7

Inventory Categories Cost Market LCM Cameras $12,500 $13,400 $12,500 Camcorders 9,000 9,500 9,000 DVDs 13,000 12,200 12,200 Total valuation $33,700 The lower-of-cost-of-market value is $33,700.

Brief Exercise 7-4 (a) Physical controls. (b) Human resource controls. (c) Independent internal verification. (d) Segregation of duties.