Capitalize or Expense?
Capitalize OR Expense:
Invoice cost to purchase new equipment.
Capitalize as equipment
What does FIFO assume?
First goods purchased, are first goods sold
What does LIFO Assume?
Most recent goods purchased are the first goods sold.
What is the definition of Weighted Average?
Average cost of items is used to calculate cost of
goods sold
What is the largest number on a multi-step income statement?
Sales
Capitalize OR Expense:
Cost to train employees on how to use new piece of equipment.
Capitalize as equipment
Compute the gross margin for FIFO:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
Sales: 175 @ 65 = $11,375
Cost of Goods Sold: (BI = 85 @ 21 = 1,785) + (PI = 90 @ 38 = 3,420) = $5,205
Gross Margin = 6,170
Compute the gross margin for LIFO:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
Sales: 175 @ 65 = $11,375
COGS = PI (114 units @ $38) + BI (61 units @$21)
GM = 11,375 - 5613 = $5,762
What is the formula for Weighted Average Cost per Unit?
Cost of Goods Available for Sale /
Units on hand on the date of sale
What is a Gain?
Increase net income
• Not expected to recur from year-to-year
• Example: Selling land for more than we paid for it
Capitalize OR Expense:
Cost to repair an existing piece of equipment.
Expense
Based on the following information, what is net income w/ $2,500 total operating expenses?:
Sales: 175 @ 65 = $11,375
Cost of Goods Sold: (BI = 85 @ $21 = 1,785) + (PI = 90 @ $38 = 3,420) = $5,205
Gross Margin = $6,170
Net Income = Sales - COGS = GM - OE = NI
$11,375 - $5,205 = $6170 - GM
6,170 - 2,500 = 3,670
Given, what is the NI when OE are 2,500?:
Sales: 175 @ 65 = $11,375
COGS = PI (114 units @ $38) + BI (61 units @$21)
GM = 11,375 - 5613 = $5,762
NI = Gross Margin - OE = $3,262
Compute the gross margin for weighted average:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
Sales: 175 @ 65 = $11,375
(BI= 85@$21= $1,785) & (UP= 114@$38= $4,332)
TI = $6117 for 199 units (85+114)
WACPU = $6117 / 199 = 30.74
COGS = 175 x 30.74 = 5,379.27 & GM = $5995.73
What is a Loss?
Decrease net income
• Not expected to recur from year-to-year
• Example: Selling land for less than we paid for it
Capitalized or Expense:
Real estate commissions incurred on land purchased for a new plant.
Capitalize as Land
Compute the ending inventory for FIFO:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
24 @ $38 = $912
Compute the ending inventory for LIFO:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
24 @ $21 = $504
Compute the net income for weighted average:
Beginning inventory 85 units @ $21 & Units purchased 114 units @ $38 & GM = $5995.73
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
Net Income = Sales - COGS = GM - OE = NI
$11,375 - $5,379.27= $5995.73 - $2,500 =
$3,495.73
What items are included in the Non Operating Section of the Income Statement
+ Interest Receivable
- Interest Expense
+ Gains
- Losses
Capitalized OR Expensed:
Cost for employee annual safety certification training.
Expense
Compute the ending inventory for WA:
Beginning inventory 85 units @ $21
Units purchased 114 units @ $38
Ending inventory consisted of 24 units. Sold 175 units at $65 each. All purchases and sales were made with cash. Operating expenses amounted to $2,500.
24 units × WACPU ($30.74) = $737.76
What is the format/all elements in order of a Multi-Step Income Statement? (8 items)
Sales
Less: Cost of Goods Sold
= Gross Margin (or Gross Profit)
Less: Operating Expenses
= Operating Income
Non operating items
+/- Other income/expense
= Net income