The owner of Fardan Stereo Sales showed the following adjusted trial balance at December 31, 2020: ?

Question:

The owner of Fardan Stereo Sales showed the following adjusted trial balance at December 31, 2020:

? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Account Account ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ?Balance*Cash ................................................................................................................................... 16,000Accounts receivable ......................................................................................................... 27,000Merchandise inventory ......................................................................................................... ?Prepaid rent ...................................................................................................................... 36,000Store fixtures .................................................................................................................. 117,000Accumulated depreciation, store fixtures...................................................................... 82,000Trademark .......................................................................................................................... 3,000Accounts payable ............................................................................................................ 18,000Unearned sales revenue .................................................................................................. 4,000Notes payable, due in 2023 ........................................................................................... 22,000Mikel Fardan, capital ...................................................................................................... 61,000Mikel Fardan, withdrawals ............................................................................................ 44,000Sales ............................................................................................................................... 449,000Sales discounts ................................................................................................................. 6,000Cost of goods sold................................................................................................................. ?Delivery expense .............................................................................................................. 5,000Rent expense .................................................................................................................. 92,000Salaries expense .......................................................................................................... 109,000Interest expense .............................................................................................................. 2,000Depreciation expense ..................................................................................................... 8,000*Assume normal account balances.

The owner, Mikel Fardan, is analyzing the effect of the various merchandise inventory costing methods on his financial statements and has prepared the following schedule:

image

Required

1. Calculate the merchandise inventory values at December 31, 2020, under each inventory costing method shown in the schedule above.

2. Prepare a single-step income statement (showing one line each for net sales, cost of goods sold, operating expenses, and interest expense) for the year ended December 31, 2020, along with a balance sheet at December 31, 2020, assuming:

a. FIFO

b. Moving weighted average

Analysis Component:

3. Does the schedule above reflect rising costs for merchandise inventory or falling costs? Explain how you know.

4. Based on your results in Part 2, which method should the owner use if he wants to:

a. Maximize profit?

b. Maximize assets?

Financial Statements
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...
Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Fundamental Accounting Principles Volume I

ISBN: 978-1260305821

16th Canadian edition

Authors: Kermit Larson, Tilly Jensen, Heidi Dieckmann

Question Posted: