Account Balance: Common Stock

Account Balancecommon Stock

Account Balance common Stock

Account Balance common Stock

Account Balance Common stock $5,100 Accounts payable $4,400 Service revenue $17,100 Land $28,800 Note payable $9,500 Cash $5,200 Dividends $6,100 Utilities expense $2,100 Accounts receivable $10,600 Delivery expense $700 Retained earnings $25,600 Salary expense $8,200 Prepare the company’s trial balance as of June 30, 2012, listing accounts in proper sequence, as illustrated in the chapter. For example, Accounts Receivable comes before Land. List the expense with the largest balance first, the expense with the next largest balance second, and so on. Question 5. (TCO 4) Linda’s Lampshades started business on Jan. 1, 2001.

They had the following inventory transactions: Journals - Jan. 2001 Purchases Supplier Date Received Quantity Unit Cost Amount Donna 01/10/..00 Thomas 01/15/..00 Cindy 01/18/..00 Sales Customer Date shipped Quantity Sel. Price Amount Norilene 01/16/..00 1. Calculate the ending inventory, using the perpetual inventory method: A. Using FIFO B.

Using LIFO C. Using Average Cost 2. Prepare the following statement Using FIFO LIFO Average Cost Sales Cost of Sales Gross Profit

Paper For Above instruction

Creating a trial balance, calculating inventory under different methods, and preparing a financial statement are essential tasks in accounting, vital for ensuring accurate financial reporting and informed managerial decisions. This paper will address each component systematically, starting with the preparation of the trial balance, followed by inventory calculations under FIFO, LIFO, and Average Cost methods, and concluding with the preparation of the income statement for Linda’s Lampshades based on these inventory valuations.

Trial Balance as of June 30, 2012

The trial balance is a fundamental accounting report that lists all accounts with their debit or credit balances to verify the equality of debits and credits after recording transactions. The proper sequence follows the standard order: assets, liabilities, equity, revenues, and expenses. Assets are listed first, starting with cash and accounts receivable, followed by property such as land. Liabilities and equity accounts come next, with income and expenses at the bottom.

Based on the provided balances, the trial balance as of June 30, 2012, is as follows:

• Cash: $5,200 (Debit)
• Accounts receivable: $10,600 (Debit)
• Land: $28,800 (Debit)
• Account balance common stock: $5,100 (Credit)
• Retained earnings: $25,600 (Credit)
• Service revenue: $17,100 (Credit)
• Dividends: $6,100 (Debit)
• Utilities expense: $2,100 (Debit)
• Salary expense: $8,200 (Debit)
• Delivery expense: $700 (Debit)
• Accounts payable: $4,400 (Credit)
• Note payable: $9,500 (Credit)

Note that expenses are listed from largest to smallest: Salary expense ($8,200), Dividends ($6,100), Utilities expense ($2,100), and Delivery expense ($700). Revenues and liabilities are appropriately classified, and the total debits equal total credits, confirming the trial balance’s accuracy.

Inventory Calculations for Linda’s Lampshades

Linda’s Lampshades started business in 2001, recording various inventory transactions in January. To accurately determine ending inventory, we employ the perpetual inventory system, which updates inventory records after each purchase and sale. Three popular methods for inventory valuation are FIFO, LIFO, and Average Cost. Each influences gross profit and net income differently.

Inventory Purchases

Note: The specific quantities and unit costs are not provided in the excerpt but are essential for calculations. Assuming such data, inventory valuation can proceed.

Inventory Methods and Calculations

1. FIFO (First-In, First-Out)

FIFO assumes that the earliest purchased items are sold first. As a result, ending inventory comprises the most recent purchases.

For example, if total units purchased and sold during the period are known, the ending inventory includes the latest units at their respective costs. This typically results in higher ending inventory valuation during periods of rising prices, thus increasing net income.

2. LIFO (Last-In, First-Out)

LIFO assumes the most recent purchases are sold first, leaving older inventory on hand. During inflation, this method results in lower ending inventory values and higher cost of goods sold, reducing taxable income.

3. Average Cost

This approach averages out the cost of all units available for sale during the period. The ending inventory and cost of goods sold are based on this average, smoothing out price fluctuations.

Sample Calculations (Hypothetical Data)

Suppose total inventory data are as follows:

• January 10: 100 units @ $5.00 = $500
• January 15: 150 units @ $6.00 = $900
• January 18: 200 units @ $7.00 = $1,400

Assuming 200 units sold, the calculations would be:

FIFO

• Cost of Goods Sold: 100 units @ $5.00 + 100 units @ $6.00 = $500 + $600 = $1,100
• Ending Inventory: Remaining 50 units @ $6.00 + 200 units @ $7.00 = $300 + $1,400 = $1,700

LIFO

• Cost of Goods Sold: 150 units @ $7.00 + 50 units @ $6.00 = $1,050 + $300 = $1,350
• Ending Inventory: Remaining 100 units @ $6.00 + 100 units @ $5.00 = $600 + $500 = $1,100

Average Cost

• Total Units: 100 + 150 + 200 = 450 units
• Total Cost: $500 + $900 + $1,400 = $2,800
• Average cost per unit: $2,800 / 450 ≈ $6.22
• Ending Inventory: (Remaining units) 250 units @ $6.22 ≈ $1,555
• Cost of Goods Sold: 200 units @ $6.22 ≈ $1,244

Financial Statements (Sales and Gross Profit)

For simplicity, suppose sales amount to $3,000, and cost of goods sold are calculated as above under each method:

• FIFO: COGS = $1,100; Gross Profit = $3,000 - $1,100 = $1,900
• LIFO: COGS = $1,350; Gross Profit = $3,000 - $1,350 = $1,650
• Average Cost: COGS ≈ $1,244; Gross Profit ≈ $1,756

These gross profit figures highlight how inventory valuation methods impact profitability reports, an important consideration for managerial decisions and taxation.

Conclusion

Accurate preparation of trial balances ensures reliable financial statements, while proper inventory valuation methods such as FIFO, LIFO, and Average Cost provide different perspectives on profitability and financial position, especially during periods of fluctuating prices. The choice of inventory method influences the reported gross profit, taxable income, and inventory value, thereby affecting business decision-making and compliance with accounting standards. Maintaining meticulous records and understanding the implications of each method are crucial for effective financial management and reporting in any enterprise.

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