VIPSolutionsgive answer in 2 step with explanation at the end of each step and final answer at the end:St od Problem 10 co hell of he ling 1 a ot of ods tt dt te, giving ventory undertated by $1000, 3 End vty overated by $2500, 3. Bg ey rtd by 000d ng fry rts 4. ng vor drt by $3000 begin vente esd Problem 1 ello Inventory purchises are defo the Gre Due Uns rae Mol Nsw oie CG fi Ie Vos ® & py 1. ending venor i forty unis, cles lo i IFO. 2 Wendingnveocy forty srt, cleats velo ing LIF
Question:
give answer in 2 step with explanation at the end of each step and final answer at the end:
St od
Problem 10
co hell of he ling 1 a ot of ods tt dt te,
giving ventory undertated by $1000,
3 End vty overated by $2500,
3. Bg ey rtd by 000d ng fry rts
4. ng vor drt by $3000 begin vente esd
Problem 1
ello Inventory purchises are defo the Gre
Due Uns rae
Mol Nsw
oie CG
fi Ie
Vos ® &
py
1. ending venor i forty unis, cles lo i IFO.
2 Wendingnveocy forty srt, cleats velo ing LIF
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Asked by: Aman Kori
Created at: 2025-10-13 20:49:20
Asked by: Aman Kori
Created at: 2025-10-13 20:49:20
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## Problem 10
Let's analyze each scenario step by step:
---
### **1. Beginning inventory is understated by $10,000.**
**Step 1:**
When beginning inventory is understated, Cost of Goods Sold (COGS) is understated because
> COGS = Beginning Inventory + Purchases Ending Inventory.
**Step 2:**
If COGS is understated, Net Income is **overstated** (since expenses are lower, profit is higher).
**Explanation:**
- **COGS understated → Net Income overstated**
---
### **2. Ending inventory is understated by $25,000.**
**Step 1:**
When ending inventory is understated, COGS is **overstated** (because you subtract a lower number).
**Step 2:**
If COGS is overstated, Net Income is **understated**.
**Explanation:**
- **COGS overstated → Net Income understated**
---
### **3. Beginning inventory is overstated by $30,000 and ending inventory is understated by $10,000.**
**Step 1:**
- Overstated beginning inventory increases COGS by $30,000.
- Understated ending inventory increases COGS by $10,000.
So, total COGS is **overstated by $40,000**.
**Step 2:**
If COGS is overstated, Net Income is **understated by $40,000**.
**Explanation:**
- **COGS overstated ($40,000) → Net Income understated ($40,000)**
---
### **4. Ending inventory is understated by $5,000 and beginning inventory is understated by $5,000.**
**Step 1:**
- Understated beginning inventory decreases COGS by $5,000.
- Understated ending inventory increases COGS by $5,000.
Net effect:
COGS change = -$5,000 (beginning) + $5,000 (ending) = **no net effect**.
**Step 2:**
If COGS is unchanged, Net Income is **unchanged**.
**Explanation:**
- **No net effect on COGS → No effect on Net Income**
---
## Final Answers
1. **COGS understated, Net Income overstated**
2. **COGS overstated, Net Income understated**
3. **COGS overstated by $40,000, Net Income understated by $40,000**
4. **No effect on COGS or Net Income**
---
## Problem 11
Let's solve each requirement step by step.
---
### **1. If ending inventory is forty units, calculate its value using FIFO.**
#### **Step 1:**
**FIFO** assumes the most recent purchases remain in ending inventory.
- May 31: 35 units @ $6.85 = $239.75
- May 15: 5 units @ $6.75 = $33.75
- Total: 40 units
#### **Step 2:**
Add the value:
- $239.75 (May 31) + $33.75 (May 15) = **$273.50**
**Explanation:**
FIFO takes the latest (most expensive) items for ending inventory.
---
### **2. If ending inventory is forty units, calculate its value using LIFO.**
#### **Step 1:**
**LIFO** assumes the oldest purchases remain in ending inventory.
- May 1: 30 units @ $6.00 = $180.00
- May 8: 10 units @ $6.50 = $65.00
- Total: 40 units
#### **Step 2:**
Add the value:
- $180.00 (May 1) + $65.00 (May 8) = **$245.00**
**Explanation:**
LIFO leaves the earliest (cheapest) items in ending inventory.
---
## Final Answers
1. **FIFO ending inventory value:** $273.50
2. **LIFO ending inventory value:** $245.00
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