Hello, I need help with my accounting homework. Thank you!
QUESTION 5: Income Statement
(a)
Income is the same as revenue and gains because they all increase owner's equity. Discuss whether this statement is correct. (2 marks)
(b)
Discuss how the cost of goods sold and gross profit are determined from the income statement. (3 marks)
(c)
Assume the total cost of the manufacturing equipment on 1 April 2015 (the date used for the start of depreciation) is $20,000,000. There is no estimated residual value, and the useful economic life for the purposes of straight-line depreciation is 20 years. On March 31, 2018, this manufacturing equipment was replaced with new equipment costing $27,000,000. A trade-in allowance of $5,000,000 was granted for the old equipment, with the difference paid in cash. Depreciation had last been recorded on January 31, 2018.
Required:
(i)
Prepare all necessary journal entries related to the event on March 31, 2018. (6 marks)
(ii)
Explain what effect this transaction has on profit, total assets, total liabilities, and retained earnings. (4 marks)
(d)
Fuji Ltd reports the following facts related to its inventory: Opening inventory consists of 7 units at $2,000 each. Purchased another 7 units of inventory at $1,000 each during the year. Sold 10 units at $3,000 each.
Required:
(i)
Calculate the company's gross profit for the current year under both FIFO and LIFO inventory valuation methods. Show all workings. (8 marks)
(ii)
Comment on the gross profit that you have calculated under LIFO and FIFO for question 5 (d)(i). Why is the gross profit for FIFO different from the gross profit for LIFO? (2 marks)
(Total for question 5: 25 marks)
