The document details the preparation of a detailed multiple-step income statement for Wright Company as of December 31, 2014, emphasizing key figures such as net sales, cost of goods sold, and operating expenses. It also examines the accuracy of cost flow methods (FIFO, LIFO, and average cost) for inventory and cost of goods sold calculations through various examples, illustrating discrepancies in reporting and tax implications. The sections highlight the importance of correct accounting practices in determining financial outcomes and inventory valuations.

1. PROBLEM 5-5B
Prepare a correct detailed multiple-step income statement.
Assume a tax rate of 25%.
WRIGHT COMPANY
Income Statement
For the Month Ended December 31, 2014
Sales Revenues
Account title
Amount
Account title
Amount
Account title
Amount
Net Sales
Cost of goods sold
Gross profit
Amount
Operating Expenses
Account title
Amount
Account title
Amount
Account title

2. Amount
Account title
Amount
Account title
Amount
Account title
Amount
Account title
Amount
Total operating expenses
Amount
Income from operations
Amount
Other revenues and gains
Account title
Amount
Other expenses and losses
Account title
Amount
Amount (Total)
Income before income taxes
Income tax expense
Net Income
P5-5B
An inexperienced accountant prepared this condensed income

3. statement for
Wright Company, a retail firm that has been in business for a
number of years.
WRIGHT COMPANY
Income Statement
For the Year Ended December 31, 2014
Revenues
Net sales $952,000
Other revenues 16,000
968,000
Cost of goods sold 548,000
Gross profit 420,000
Operating expenses
Selling expenses 160,000
Administrative expenses
104,000
264,000
Net earnings $156,000
As an experienced, knowledgeable accountant, you review the
statement and determine
the following facts.
1. Net sales consist of sales $972,000, less freight-out on
merchandise sold $20,000.
2. Other revenues consist of sales discounts $12,000 and
interest revenue $4,000.
3. Selling expenses consist of salespersons’ salaries $88,000;
depreciation on equip-
ment $4,000; sales returns and allowances $46,000; advertising
$12,000; and sales
commissions $10,000. All compensation should be recorded as
Salaries and Wages
Expense.
4. Administrative expenses consist of office salaries $54,000;
dividends $14,000; utili-
ties $13,000; interest expense $3,000; and rent expense

4. $20,000, which includes
prepayments totaling $2,000 for the first month of 2015. The
utilities represent
utilities paid. At December 31, utility expense of $3,000 has
been incurred but not
paid.
Problem 6-2B
(a) Determine the Cost of Goods Available for Sale
Date
Explanation
Units
Unit Cost
Total Cost

5. Total
(b) Determine the ending inventory and cost of goods sold under
each of the assumed cost flow methods.
Prove the accuracy of the cost of goods sold under FIFO and
LIFO.
FIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount

6. Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (FIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount

7. LIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (LIFO)
Date
Units
Unit Cost
Total Cost

8. Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
(1) Ending Inventory
(2) Cost of Goods Sold
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory

9. Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
(c) Which cost flow method results in (1) the highest inventory
amount for the balance sheet and (2) the highest cost of goods
sold for the income statement?
Enter your answer here
P6-2B
Lifetime Distribution markets classic children’s books. At the
beginning of June, Lifetime had in beginning inventory 1,200
books with a unit cost of $3. During June, Life- time made the
following purchases of books.
June
3
4,000 @ $3
June 29

10. 4,000 @ $6
June 18
7,500 @ $5
During June, 10,500 books were sold. Lifetime uses a periodic
inventory system.
Instructions
(a)
Determine the cost of goods available for sale.
(b)
Determine (1) the ending inventory and (2) the cost of goods
sold under each of the assumed cost flow methods (FIFO, LIFO,
and average-cost). Prove the accuracy of the cost of goods sold
under the FIFO and LIFO methods. (Note: For average-cost,
round cost per unit to three decimal places.)
(c)
Which cost flow method results in (1) the highest inventory
amount for the balance sheet and (2) the highest cost of goods
sold for the income statement?
Problem 6-3B
(a) Determine the Cost of Goods Available for Sale
Date
Explanation
Units
Unit Cost
Total Cost

11. Total
(b) Determine the ending inventory and the cost of goods sold
under each of the assumed cost flow methods (FIFO, LIFO and
average-cost).
Prove the accuracy of the cost of goods sold under each method.
FIFO

12. (1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (FIFO)
Date
Units
Unit Cost
Total Cost
Amount

13. Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total
Amount
LIFO
(1) Ending Inventory
(2) Cost of Goods Sold
Date
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Amount

14. Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
Proof of Cost of Goods Sold (LIFO)
Date
Units
Unit Cost
Total Cost
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Amount
Total
Amount
Total

15. Amount
AVERAGE COST (Round to the nearest decimal, i.e., $1.01)
(1) Ending Inventory
(2) Cost of Goods Sold
Units
Unit Cost
Total Cost
Cost of goods available for sale
Amount
Amount
Amount
Less: ending inventory
Amount
Total
Amount
Total
Amount
Cost of Goods Sold
Amount
(c) Which cost flow method results in the lowest inventory
amount for the balance sheet? The lowest cost of goods sold for
the income statement?
Enter your answer here

16. P6-3B
Smythe Company Inc. had a beginning inventory of 200 units of
Product ERV at a cost of $6 per unit. During the year, purchases
were:
Jan 24
800 units at $7
Aug. 19
600 units at $9
Apr 12
400 units at $8
Nov. 30
350 units at $10
Smythe Company uses a periodic inventory system. Sales
totaled 1,900 units.
Instructions
(a) Determine the cost of goods available for sale.
(b) Determine the ending inventory and the cost of goods sold
under each of the assumed cost
flow methods (FIFO, LIFO, and average-cost). Prove the
accuracy of the cost of goods sold
under the FIFO and LIFO methods. (Round average unit cost to
three decimal places.)
(c)

17. Which cost flow method results in the lowest inventory amount
for the balance sheet?
The lowest cost of goods sold for the income statement?