Average inventory (throughout the year) / $ / 33,835
Current assets (at year-end) / 48,949
Current liabilities (at year-end) / 55,390
Net sales / 401,244
Cost of goods sold / 306,158
Gross profit / 95,086
Average time required to collect outstanding receivables / 10 / days
Instructions
a. / Using the information provided, compute the following measures based upon the LIFO method:
a-1 / Compute the inventory turnover rate.(Round your answer to2decimal places.)
Inventory turnover rate / times
a-2 / Compute the current ratio. (Round your answer to 2 decimal places.)
Current ratio / : 1
a-3 / Compute the gross profit rate. (Round your answer to1decimal place. Omit the "%" sign in your response.)
Gross profit rate / %
Top of Form
Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World purchased eight of these cycles at the following costs:Purchase Date / Units Purchased / Unit Cost / Total Cost
July 1 / 2 / $ / 4,950 / $ / 9,900
July 22 / 3 / 5,000 / 15,000
Aug. 3 / 3 / 5,100 / 15,300
8 / $ / 40,200
On July 28, Speed World sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.
Assume that Speed World uses a periodic inventory system.
a. / Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using the following cost flow assumptions:
1. / Average cost
2. / FIFO
3. / LIFO
Show the number of units and unit costs in each cost layer of the ending inventory. You may determine the cost of goods sold by deducting ending inventory from the cost of goods available for sale. (Omit the "$" sign in your response.)
a. / Cost of goods sold and ending inventory
1. / Average-cost method:
Ending inventory at September 30:
Average cost / $
Ending inventory / $
Cost of goods sold through September 30:
Cost of goods available for sale / $
Less: Ending inventory at September 30 (above)
Cost of goods sold / $
2. / First-in, first-out (FIFO) method:
Ending inventory at September 30:
From purchase on August 3 / $
From purchase on July 22
$
Cost of goods sold through September 30:
Cost of goods available for sale / $
Less: Ending inventory at September 30 (above)
Cost of goods sold / $
3. / Last-in, first-out (LIFO) method:
Ending inventory at September 30:
From purchase on July 1 / $
From purchase on July 22
Ending inventory / $
Cost of goods sold:
Cost of goods available for sale / $
Less: Ending inventory at September 30 (above)
Cost of goods sold / $
Top of Form
Problem 8.2A Alternative Cost Flow Assumptions in a Perpetual System L.O. 1
Speed World Cycles sells high-performance motorcycles and motocross racers. One of Speed World's most popular models is the Kazomma 900 dirt bike. During the current year, Speed World purchased eight of these cycles at the following costs:Purchase Date / Units Purchased / Unit Cost / Total Cost
July 1 / 2 / $ / 4,950 / $ / 9,900
July 22 / 3 / 5,000 / 15,000
Aug. 3 / 3 / 5,100 / 15,300
8 / $ / 40,200
On July 28, Speed World sold four Kazomma 900 dirt bikes to the Vince Wilson racing team. The remaining four bikes remained in inventory at September 30, the end of Speed World's fiscal year.
Assume that Speed World uses a perpetual inventory system.
a(1) / Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using average cost method. (Omit the "$" sign in your response.)
Cost of goods sold / $
Ending inventory / $
a(2) / Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using FIFO method. (Omit the "$" sign in your response.)
Cost of goods sold / $
Ending inventory / $
a(3) / Compute the cost of goods sold relating to the sale on July 28 and the ending inventory of Kazomma 900 dirt bikes at September 30, using LIFO method. (Omit the "$" sign in your response.)
Cost of goods sold / $
Ending inventory / $
b(1) / Which of the three cost flow assumptions will result in Speed World Cycles reporting the highest net income for the current year?
LIFO
FIFO
Average cost
b(2) / Which of the three cost flow assumptions will minimize the income taxes owed by Speed World Cycles for the year?
Average cost
FIFO
LIFO
b(3) / May Speed World Cycles use the cost flow assumption that results in the highest net income for the current year in its financial statements, but use the cost flow assumption that minimizes taxable income for the current year in its income tax return?
No
Yes
Bottom of Form