Compute the straight-line depreciation for each year for equipment with a cost of $50,000, a five-year useful life, and a $5,000 salvage value.
a1. Use the format in Exhibit 8–1 to compute the ending FIFO inventory and the cost of goods sold, assuming $90,000 in sales; beginning inventory 500 units @ $50; purchases of 400 units @ $50; 100 units @ $65; 400 units @ $80.
a2. Also compute the cost of goods sold percentage of sales.
b1. Use the format in Exhibit 8–2 to compute the ending LIFO inventory and the cost of goods sold, using same assumptions.
b2. Also compute the cost of goods sold percentage of sales.
c. Comment on the difference in outcomes.
Assignment Exercise 8–2: Inventory Turnover
Study the “Calculating Inventory Turnover” portion of the chapter closely, whereby the cost of goods sold divided by the average inventory equals the inventory turnover.
Required
Compute two inventory turnover calculations as follows:
1. Use the LIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.
2. Use the FIFO information in the previous assignment to first compute the average inventory and then to compute the inventory turnover.
Example 8A: Depreciation Concept
Assume that Metropolis Health System (MHS) purchased equipment for $200,000 cash on April 1 (the first day of its fiscal year). This equipment has an expected life of 10 years. The salvage value is 10% of cost. No equipment was traded in on this purchase.
Straight-line depreciation is a method that charges an equal amount of depreciation for each year the asset is in service. In the case of this purchase, straight-line depreciation would amount to $18,000 per year for 10 years. This amount is computed as follows:
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