Financial Accounting Hw 5

Daniel Simonsen

HW_5

I.)Brief Excerise 5-8

The net income will be overstated.

The two items on the balance sheet affected will be Inventory and Retained Earnings which both will be overstated.

II.) Excerice 5-13

1.)A

2.)D

3.)C

4.)C

5.)B

6.)A

7.)B

8.)C

9.)D

III.) Problem 5-1

Buisness Types of Costs Expenses of Inventory Other

The period Cost Treatment

Retail Shoe Shoes For Sale X

Store Shoe Boxes X

Advertising Signs X

Grocery Store Canned Goods X

Produce X

Cleaning Supplies X

Cash Registers X

Cleaning supplies would be an asset and a charge to expense

Cash Registers would be an asset and depreciate over life span

Frame Shop Wooden Frame-

Supplies X

Nails X

Glass X

Walk-in Print

Shop Paper X

Copy Machines X

Toner Cartridges X

Copy Machines would be an asset that will depreciate of life span

Toner Cartridges would be an asset and charge as expense

Restaurant Frozen Food X

China And Silverware X

Prepared food X

Spices X

China would be an asset that will depreciate over time

IV.) Problem 5-3

1.) The company that will report the highest net income will be company B which uses the FIFO method. This is because the costs to purchase inventory is in a rising market and since company B is selling its products that it purchased when the market was cheaper means the costs of goods sold will be cheaper in turn makes a higher net income.

2.)The company that will pay the least in taxes is company C. This is because the LIFO method means the costs to purchase inventory was at a higher price and since those higher prices are being sold right away the revenue is lower. The costs of goods sold will be higher as well which means lower income which means less taxes to be paid.

3.) The company superior to the other when it comes to investors would be the one that uses LIFO because it shows that...