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E 5-7

E5-7	NOTE: Make sure to maximize your screen by clicking on the small square on the top right corner of your screen so you can see the "tabs" at the bottom
Financial information is presented here for two companies
	Indigo Company	Perez Company
Sales Revenue	$ 90,000
Sales Returns		$ 5,000
Net Sales	84,000	100,000
Cost of Goods Sold	$ 58,000
Gross Profit		40,000
Operating Expenses	14380
Net Income		$17,000
Instructions:
a) Fill in the missing amounts. Show all computations
b) Calculate the profit margin ratio and the gross profit rate for each company
	Profit Margin Ration (This is a percentage):		See page 247 in Chapter 5 for the Profit Margin Formula and explanation
	Gross Profit rate (This is a percentage:		See page 245 in Chapter 5 for the Gross Profit Rate Formula
c) Discuss your findings in part b)
	Include your response in the space below:
**This workbook has 6 tabs, one worksheet for each BE and E exercise.
**Make sure to select the next tab at the bottom (if you do not see the tabs, open
your screen by clicking the "square" at the top right corner of the screen).

BE 6-5

BE6-5 on page 312

In its first month of operation, Moraine Company purchased:100 units of inventory for $6, then 200 units for $7, and finally 140 units for $8. At the end of the month, 180 units remained.

Compute the amount of phantom profit that would result if the company used FIFO rather than LIFO. Explain why this amount is referred to as phantom profit. The company uses the periodic method.

ALL HIGHLIGHTED YELLOW SPACES REQUIRE YOUR INPUT… MAKE SURE TO SCROLL DOWN!!! COMPLETE PARTS A) AND B)

**See page 292 – 293 regarding the “Phantom Profit” concept. Apply to this problem

FIFO

LIFO

Units

Unit Cost

Total Cost

Units

Unit Cost

Total Cost

Purchase #1

Purchase #2

Purchase #3

Cost of Goods Available for Sale

LESS:

Ending Inventory

Cost of Goods Sold

$0.00

Phantom Profit

* YOU MUST COMPLETE THE ITEMS BELOW FOR THE NUMBERS TO POPULATE THIS SECTION

FIFO

Cost of Goods Sold - PROOF

LIFO

Cost of Goods Sold - PROOF

Ending Inventory

Units

Unit Cost

Total Cost

Ending Inventory

Units

Unit Cost

Total Cost

Units

Unit Cost

Total Cost

Units

Unit Cost

Total Cost

Page 288 discusses and illustrates the FIFO method of inventory costing

Page 289 provides an example of “proof of cost of goods sold”.

Page 289 discusses and illustrations Last-In, First out (LIFO) method of

inventory costing. Illustration 6-8 shows the “Proof of cost of goods sold” for the example provided.

In the space below….Explain why this amount is referred to as phantom profit. The company uses the periodic method.

BE 6-7

BE6-7
Olsson Video Center accumulates the following cost and market data at December 31
	Inventory Categories	Cost Data	Market Data	LCM
	Cameras	12,500	13,400
	Camcorders	9,000	9,500
	DVD	13,000	12,200
	Total
Compute the lower-of-cost-or-market valuation for Olsson inventory
See page 290 in the Text - Chapter 7.
**The discussion for the “Lower-of-cost-or-market” inventory
valuation method begins on page 295 in Chapter 6. Illustration
6-15 on page 296 provides an excellent demonstration on how to
solve this problem. You can also refer to the “Do it” exercise for
a different example.

E6-5

BE6-7 on page 315
Klumb Inc. uses a periodic inventory system. Its records show the following for the month of May, in which 74 units were sold.
	Date	Explanation	Units	Unit Costs	Total Costs
	1-May	Inventory	30	$9	$270
	15-May	Purchase	25	10	250
	24-May	Purchase	38	11	418
		Total	93		$938
	Instructions:
	Instructions:
	Calculate the ending inventory at May 31 using the a) FIFO, b) average-cost, and c)LIFO methods. (For average cost, round the average unit cost to three decimal places.) Prove the amount allocated to cost of goods sold under each method
	***Use the set up below to calculate the cost of goods sold under each method
FIFO					LIFO				Average Costs
Ending Inventory					Ending Inventory				Ending Inventory
	Units	Unit Costs	Total Costs			Units	Unit Cost	Total Cost		Units	Unit Cost	Total Cost
								$0				$0.000
								0				$0.000
	0		0			0		$0		0		$0.000
Cost of Goods Sold					Cost of Goods Sold				Cost of Goods Sold
Units	Unit Cost	Total Cost			Units	Unit Cost	Total Cost		Units	Unit Cost	Total Cost
		$0					$0				$0.000
		0					0				$0.000
		0					0				$0.000
0		$0			0		$0		0		$0.000
	**Refer to Illustration 6-3 on page 293.
	Page 288 discusses and illustrates the FIFO method of inventory costing
	Page 289 provides an example of “proof of cost of goods sold”.
	Page 289 discusses and illustrations Last-In, First out (LIFO) method of
	inventory costing. Illustration 6-8 shows the “Proof of cost of goods sold” for the example provided.
	The discussion for the “Lower-of-cost-or-market” inventory valuation method begins on page 295 in Chapter 6.
	Illustration 6-15 on page 296 provides an excellent demonstration on how to solve this problem.
	You can also refer to the “Do it” exercise for a different example.

BE 7-4

	BE7-4: Chapter 7 on page 372
	Aldstadt Company has the following internal control procedures over cash receipts.
	Identify the internal control principle that is applicable to each procedure.
							Internal Control Principle?
	(a) All over-the-counter receipts are registered on cash registers.
	(b) All cashiers are bonded.
	(c) Daily cash counts are made by cashier department supervisors.
	(d) The duties of receiving cash, recording cash, and having custody of cash are assigned to different individuals
	(e) Only cashiers may operate cash registers.
	**The Internal Control Principles are found in Chapter 7 pages: 338 – 345

E 7-4

E 7-4 Chapter 7 page 374

The following control procedures are used in Katja’s Boutique Shoppe for cash disbursements.

Internal Control Principle violated

Explain the weakness

Suggested change in procedure that will result in good internal controls

Each week, Katja leaves 100 company checks in an unmarked envelope on a shelf behind the cash register.

The store manager personally approves all payments before signing and issuing checks.

The company checks are unnumbered.

After payment, bills are “filed” in a paid invoice folder.

The company accountant prepares the bank reconciliation and reports any discrepancies to the owner.

a) For each procedure, explain the weakness in internal control and identify the inter- nal control principle that is violated. (Include your response in the space provided above)

b) For each weakness, suggest a change in the procedure that will result in good internal controls (Include your response in the space provided above)

**The Internal Control Principles are found in Chapter 7 pages: 338 – 345

Grading Rubric

Week 8 - Exercises Grading Rubric
E 5-7, BE 6-5, BE 6-7, E6-5, BE 7-4, E7-4
Description	Points Possible	Points Earned	Comments
E 5-7
Determine Missing Amounts a) - f)	6
Calculate the Profit Margin Ratio and Gross Margin rate	2
Discuss/Interpret findings	2
BE6-5
Calculate: FIFO Cost of Goods, LIFO Cost of goods	4
Explain Phantom Profit	4
BE6-7
Determine LCM	2
BE7-4
Identify the Internal Control Principle applicable to each scenario	5
E 7-4
Identify the Internal Control Principle applicable to each scenario	10
Total Points	35
% points deducted for submitting * days late			Overall Score
Comments:
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