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TitleanthonyIM_06
TagsInventory Cost Of Goods Sold Gross Margin Expense Inventory Valuation
File Size205.5 KB
Total Pages18
Table of Contents
                            Changes from Eleventh Edition
Approach
Cases
Problems
	Problem 6-1
	Problem 6-2
	Problem 6-3
	Problem 6-4
	Problem 6-5
	Problem 6-6
	Problem 6-7
Cases
	Approach
	Comments on Questions
	Approach
	Calculations for Questions
	Pedagogical Approach
                        
Document Text Contents
Page 1

CHAPTER 6
COST OF SALES AND INVENTORIES

Changes from Eleventh Edition

Editorial and updated changes have been made.

Approach

This chapter can be assigned in two parts, if the instructor wishes to spend several sessions on these
topics. The second assignment can begin with the section titled “Inventory Costing Methods.”

By now, students will have had to deduce cost of goods sold if they have tackled the cases in previous
chapters. Nevertheless, for some students this deduction process is a difficult one to grasp, and it is
important that it be understood. Also, the mechanics of flows through a manufacturing company are
difficult to grasp. Students will encounter this topic again in Chapter 17, however, so it doesn’t matter too
much if they don’t get it here. This is another one of the topics that seems to be mastered only after drill
with a number of problems.

The choice between LIFO and FIFO also causes problems, perhaps because LIFO obviously does not
match the physical flow of goods. It should perhaps be emphasized that, regardless of the conceptual
merit of one method or the other, LIFO defers incomes taxes, and it defers them forever in an inflationary
economy. The discussion also provides a way of highlighting the fact that accounting focuses on the
measurement of income, even though the result is an unrealistic balance sheet (as is the case with LIFO
inventories).

Cases

Browning Manufacturing Company requires recording a complete cycle of transactions in a
manufacturing company. It is straightforward.

Lewis Corporation is a problem that contrasts FIFO and LIFO in a clear-cut way.

Morgan Manufacturing deals with the adjustment, comparison, and interpretation of financial statements
for two firms, one prepared using LIFO and the other using FIFO.

Joan Holtz (B) is the second set of discrete problems, from which the instructor can select those he or she
wants to discuss in class.

VAL Corporation deals with accounting for mileage programs.

Problems

Problem 6-1

The completed table is shown below. Each deduction involves the basic inventory equation.

Ending inventory = Beginning Inventory + Purchase – Shipments (COGS)

as well as the basic relationships inherent in any income statement, that is:,

1

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