On February 1, Bike Mart had a beginning inventory of 20 bicycles which it purch
ID: 2424317 • Letter: O
Question
On February 1, Bike Mart had a beginning inventory of 20 bicycles which it purchased for $300 each. On February 5th, the company purchases four more bicycles for $350 each. None were sold that week. On February 12th, the company purchases five more bicycles for $400 each. Between February 13 and 28, Bike Mart sells 10 of these bicycles. a.) Calculate Bike Mart’s Ending Inventory Balance (in dollars) at the end of February and Cost of Goods Sold through February using the LIFO Method. (show all work.) b.) Calculate Bike Mart’s Ending Inventory Balance (in dollars) at the end of February and Cost of Goods Sold through February using the Weighted Average Method. (show all work.) c.) At the end of February, will Bike Mart’s Net Income (profits) on its Income Statement be higher if it uses the LIFO or Weighted Average Inventory Method? Why? d.) At the end of February, will Bike Mart’s Total Assets on its Balance Sheet be higher if it uses the LIFO or Weighted Average Inventory Method? Why? #2 (10 points) Record each of these six transactions on the horizontal statements on the last page. a) On Feb. 1, Health Mart Company acquired $20,000 cash by issuing common stock. b) On Feb. 1, Health Mart Company purchases $10,000 of merchandise on account and is given the opportunity for a discount of 2/10 n/30. c) On Feb 2, Health Mart Company received the merchandise purchased in transaction (b) above. The shipping terms were FOB shipping point and Health Mart paid the freight company $500 cash for delivering the merchandise. d) On Feb. 8, Health Mart pays it’s supplier for all the merchandise it purchased in transaction (b) above. e) On Feb 10, Health Mart sold $5,000 of its merchandise inventory to a hospital for $8,000 on account. f) On Feb 20, the hospital returned $2,000 of the $8,000 of merchandise it purchased from Health Mart in transaction (e) above. The returned merchandise had originally cost Health Mart $1,250. By signing this exam, I attest that I have completed it alone without assistance form anyone: Student signature Date HEALTH MART HORIZONTAL STATEMENTS Balance Sheet Income Statement Statement of Assets = Liab. + Stkholders’ Equity Rev. Exp. = Net Inc. Cash Flows Cash + A. Rec. + Mdse. Inv. = A. Pay. + C. Stk. + Ret. Ear. a.) b.) c.) d.) e.) f.) End. Bal.
Explanation / Answer
a.)
Statement showing ending inventory balance (in dollars) at the end of February, and Cost of Goods Sold through February using the LIFO (Last-in, First-Out) Method
Date
Particulars
Receipts
Issues
Balance
Units
Rate
Amount
Units
Rate
Amount
Units
Rate
Amount
1, Feb
To Opening balance
-
-
-
-
-
-
20
300
6000
5, Feb
To Purchases
4
350
1400
-
-
-
4
20
350
300
1400
6000
12, Feb
To Purchases
5
400
2000
-
-
-
5
4
20
400
350
300
2000
1400
6000
13-28, Feb
By Sales
5
4
1
400
350
300
2000
1400
300
19
300
5700
From the above table it is clear that by using LIFO (Last-in, First-Out) ending inventory balance (in dollars) at the end of February is $5,700 consisting of 19 bicycles at a rate of $300 each and cost of goods sold through February is $3,700 consisting of 5 bicycles at a rate of $400 each, 4 bicycles at a rate of $350 each and 1 bicycle at a rate of 300 each .
Note: In the LIFO (Last-in, First-Out) method the good should be issued out of recent arrivals in store.
b.)
Statement showing ending inventory balance (in dollars) at the end of February, and Cost of Goods Sold through February using the Weighted Average Method
Date
Particulars
Receipts
Issues
Balance
Units
Rate
Amount
Units
Rate
Amount
Units
Rate
Amount
1, Feb
To Opening balance
-
-
-
-
-
-
20
300
6000
5, Feb
To Purchases
4
350
1400
-
-
-
24
308.333
7400
12, Feb
To Purchases
5
400
2000
-
-
-
29
324.138
9400
13-28, Feb
By Sales
10
324.138
3241.38
19
324.138
6158.62
From the above table it is clear that by using Weighted Average Method ending inventory balance (in dollars) at the end of February is $6,158.62 consisting of 19 bicycles at a rate of $324.138 each and cost of goods sold through February is $3,241.38 consisting of 10 bicycles at a rate of $324.138 each .
c.)
B M’s Net income (profit) would be higher if it uses the weighted average inventory method. Since, the cost of goods sold through February by using weighted average inventory method is $3,241.38 which is less than the cost of goods sold through February by using LIFO (Last-in, First-Out) method is $3,700.
d.)
B M’s Total Assets would be higher if it uses the weighted average inventory method. Since, February ending inventory balance (in dollars) by using weighted average inventory method is $6,158.62 which is higher than the ending inventory balance (in dollars) by using LIFO (Last-in, First-Out) method is $5,700.
Date
Particulars
Receipts
Issues
Balance
Units
Rate
Amount
Units
Rate
Amount
Units
Rate
Amount
1, Feb
To Opening balance
-
-
-
-
-
-
20
300
6000
5, Feb
To Purchases
4
350
1400
-
-
-
4
20
350
300
1400
6000
12, Feb
To Purchases
5
400
2000
-
-
-
5
4
20
400
350
300
2000
1400
6000
13-28, Feb
By Sales
5
4
1
400
350
300
2000
1400
300
19
300
5700
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