Question

Use this Fact Set for Questions 2-7: Three retailing giants, Best Buy Co., Inc. (NYSE: BBY), Amazon.com, Inc., (NASDAQ: AMZN), and Target Corporation (NYSE: TGT) each use a different inventory costing method. Best Buy uses weighted-average cost, Amazon uses FIFO, and Target uses LIFO. As you will see from the hypothetical example below, the use of a different inventory costing method will lead to differences in income statements and balance sheets.

Best Buy, Amazon and Target sell a popular T-shirt for $20. Let’s assume that all three companies have the same sale and inventory purchase pattern for the same period.

Beginning inventory: 20,000 @ $4.00 Purchases: 30,000 @ $5.00

  

Ending inventory: 10,000

2. (0.5 point) How many T-shirts were sold by each retailer during the period?

   1. 10,000 T-shirts

   2. 20,000T- shirts

   3. 30,000 T-shirts

   4. 40,000 T-shirts

3. (0.7 point) What is cost of goods sold, gross profit and cost of ending inventory for Best Buy using the weighted-average inventory costing method?

   1. $180,000; $620,000; $50,000

   2. $190,000; $610,000; $40,000

   3. $184,000; $616,000; $46,000

   4. $150,000; $680,000; $62,000

4. (0.7 point) What is cost of goods sold, gross profit and cost of ending inventory for Amazon using the FIFO inventory costing method?

   1. $180,000; $620,000; $50,000

   2. $190,000; $610,000; $40,000

   3. $184,000; $616,000; $46,000

   4. $150,000; $680,000; $62,000

5. (0.7 point) What is cost of goods sold, gross profit and cost of ending inventory for Target using the LIFO inventory costing method?

   1. $180,000; $620,000; $50,000

   2. $190,000; $610,000; $40,000

   3. $184,000; $616,000; $46,000

   4. $150,000; $680,000; $62,000

6. (0.7 point) Which company has the highest gross profit (profitability) simply due to its choice of accounting inventory method

   1. Best Buy

   2. Amazon

   3. Target

   4. Gross profit was the same for all of the companies, since they sold the same

      amount shirts for the same price as well as they pay the same price for their inventory

7. (0.7 point) Which company will save the most on income taxes? (hint: the less income you report, the less income taxes you pay)

a. Best Buy

b. Amazon

c. Target

d. The tax bill will be same for all of the companies since they sold the same

number of shirts for the same price as well as they paid the same price for their inventory.

Answer 1

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