P5-2A Olaf Distributing Company completed the following merchandising transactions in themonth of April. At the beginning of April, the ledger of Olaf showed Cash of $9,000 andCommon Stock of $9,000.April 2 Purchased merchandise on account from Dakota Supply Co. $6,900, terms 1/10, n/30.April 4 Sold merchandise on account $5,500, FOB destination, terms 1/10, n/30.The cost of themerchandise sold was $4,100.April 5 Paid $240 freight on April 4 sale.April 6 Received credit from Dakota Supply Co. for merchandise returned $500.April 11 Paid Dakota Supply Co. in full, less discount.April 13 Received collections in full, less discounts, from customers billed on April 4.April 14 Purchased merchandise for cash $3,800.April 16 Received refund from supplier for returned goods on cash purchase of April 14, $500.April 18 Purchased merchandise from Skywalker Distributors $4,500, FOB shipping point,terms 2/10, n/30.April 20 Paid freight on April 18 purchase $100.April 23 Sold merchandise for cash $6,400.The merchandise sold had a cost of $5,120.April 26 Purchased merchandise for cash $2,300.April 27 Paid Skywalker Distributors in full, less discount.April 29 Made refunds to cash customers for defective merchandise $90. The returned merchandisehad a scrap value of $30.April 30 Sold merchandise on account $3,700, terms n/30.The cost of the merchandise sold was$2,800.Olaf Company’s chart of accounts includes the following: No. 101 Cash, No. 112 AccountsReceivable,No. 120 Merchandise Inventory,No. 201 Accounts Payable,No. 311 Common Stock,No. 401 Sales, No. 412 Sales Returns and Allowances, No. 414 Sales Discounts, No. 505 Cost ofGoods Sold, and No. 644 Freight-out.Instructions(a) Journalize the transactions using a perpetual inventory system.(b) Enter the beginning cash and common stock balances, and post the transactions. (Use J1 forthe journal reference.)(c) Prepare the income statement through gross profit for the month of April 2011.For Chapter 6:E6-7 Jones Company had 100 units in beginning inventory at a total cost of $10,000.The companypurchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units inending inventory.Instructions(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO,(2) LIFO, and (3) average-cost.(b) Which cost flow method would result in the highest net income?(c) Which cost flow method would result in inventories approximating current cost in the balancesheet?(d) Which cost flow method would result in Jones paying the least taxes in the first year?E6-11 Lebo Hardware reported cost of goods sold as follows.2011 2012Beginning inventory $ 20,000 $ 30,000Cost of goods purchased 150,000 175,000Cost of goods available for sale 170,000 205,000Ending inventory 30,000 35,000Cost of goods sold $140,000 $170,000Lebo made two errors: (1) 2011 ending inventory was overstated $3,000, and (2) 2012 ending inventorywas understated $6,000.InstructionsCompute the correct cost of goods sold for each year.P6-3B Lobster Company had a beginning inventory on January 1 of 150 units of ProductBU-54 at a cost of $20 per unit. During the year, the following purchases were made.Mar. 15 400 units at $23 Sept. 4 350 units at $26July 20 250 units at $24 Dec. 2 100 units at $291,000 units were sold. Lobster Company 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 assumedcost flow methods (FIFO, LIFO, and average-cost). Prove the accuracy of the cost of goodssold under the FIFO and LIFO methods.(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?P6-7B The management of Clare Co. asks your help in determining the comparative effects ofthe FIFO and LIFO inventory cost flow methods. For 2011, the accounting records show the followingdata.Inventory, January 1 (10,000 units) $ 45,000Cost of 100,000 units purchased 532,000Selling price of 80,000 units sold 700,000Operating expenses 140,000Units purchased consisted of 35,000 units at $5.10 on May 10; 35,000 units at $5.30 on August 15;and 30,000 units at $5.60 on November 20. Income taxes are 30%.Instructions(a) Prepare comparative condensed income statements for 2011 under FIFO and LIFO. (Showcomputations of ending inventory.)(b) Answer the following questions for management.(1) Which inventory cost flow method produces the most meaningful inventory amount forthe balance sheet? Why?(2) Which inventory cost flow method produces the most meaningful net income? Why?(3) Which inventory cost flow method is most likely to approximate actual physical flow ofthe goods? Why?(4) How much additional cash will be available for management under LIFO than underFIFO? Why?(5) How much of the gross profit under FIFO is illusory in comparison with the gross profitunder LIFO?