Questions: a.According to the payback method, which project should be selected? b. What is the chief disadvantage of this method? c. Why would anyone want to use this method? Solution Answer:a I will explain this by a example given below: Two projects are viewed as equally attractive if they have the same payback regardless of when the payback occurs. If both project require an initial investment of $300,000, but Project 1 has a payback of one year and Project two of three years, the projects are viewed equally, although Project 1 is more valuable because additional interest could be earned on the funds in year two and three. Answer:b The payback period is considered a method of analysis with serious limitations and qualifications for its use, because it does not account for the time value of money, risk, financing, or other important considerations, such as the opportunity cost. While the time value of money can be rectified by applying a weighted average cost of capital discount, it is generally agreed that this tool for investment decisions should not be used in isolation. Payback also ignores the cash flows beyond the payback period, thereby ignoring the profitability of the project. Thus, one project may be more valuable than another based on future cash flows, but the payback method does not capture this. Answer:c Anyone would use this method because of its advantages described below:.

1. Question
The beginning inventory for Dunne Co. and data on purchases and sales for a three-month period
are as follows:
Transaction Units Per Unit Total
Apr 3- Inventory 25 $1200 $30000
Apr 8- Purchase 75 1240 93000
Apr 11- Sale 40 2000 80000
Apr 30- Sale 30 2000 60000
May 8- Purchase 60 1260 75600
May 10- Sale 50 2000 100000
May 19- Sale 20 2000 40000
May 28- Purchase 80 1260 100000
June 5- Sale 40 2250 90000
June 16- Sale 25 2250 56250
June 21- Purchase 35 1264 44240
June 28- Sale 44 2250 99000
Instructions:
1. record the inventory, purchases, and cost of merchandise sold data in a perpetual inventory
record using the first in first out method.
2. determine the total sales and the total cost of merchandise sold for the period. Journalize the
entries in the sales and cost of merchandise sold accounts. Assume that all sales were on account.
3. Determine the gross profit from sales for the period.
4. Determine the ending inventory cost on June 30, 2016.
5. Based upon the proceeding data, would you expect the inventory using the last in, first out
method to be higher or lower?
7-2B
The beginning inventory for Dunne Co. and data on purchases and sales for the three-month
period are shown in Problem 7-1B.
1. Record the inventory, purchases, and cost of merchandice sold data in a perpetual inventory
record similar to the oen illustratedin Exhibit 5, using the last-in, first-out method.
2. Determine the total sales, the total cost of the merchandice sold, and the gross profit from sales
for the period.
3. Determine the ending inventory cost on June 30, 2016. DatePurchasesCost of Merchandise
SoldInventoryQuantityUnit CostTotal CostQuantityUnit CostTotal CostQuantityUnit CostTotal
CostApril325$1,200$30,00081130May8101928June516212830BalancesDatePurchasesCost of

2. Merchandise SoldInventoryQuantityUnit CostTotal CostQuantityUnit CostTotal
CostQuantityUnit CostTotal
CostApr.325$1,200$30,00081130May8101928June516212830Balances
Solution
FIFO Method For the three months Purchases Cost of Merchandise Sold Inventory Date
Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost Quantity Unit Cost Total Cost
Apr. 3 25 $ 1,200.00 $ 30,000.00 Apr.8 75 $ 1,240.00 $
93,000.00 25 $ 1,200.00 $ 30,000.00 75 $ 1,240.00 $ 93,000.00
Apr. 11 25 $ 1,200.00 $ 30,000.00 60 $ 1,240.00 $ 74,400.00
15 $ 1,240.00 $ 18,600.00 Apr. 30 30 $ 1,240.00 $ 37,200.00
30 $ 1,240.00 $ 37,200.00 May. 8 60 $ 1,260.00 $ 75,600.00
30 $ 1,240.00 $ 37,200.00 60 $ 1,260.00 $ 75,600.00 May.
10 30 $ 1,240.00 $ 37,200.00 40 $ 1,260.00 $ 50,400.00 20
$ 1,260.00 $ 25,200.00 May. 19 20 $ 1,260.00 $ 25,200.00 20
$ 1,260.00 $ 25,200.00 May. 28 80 $ 1,260.00 $ 100,800.00 20 $
1,260.00 $ 25,200.00 80 $ 1,260.00 $ 100,800.00 June. 5 20
$ 1,260.00 $ 25,200.00 60 $ 1,260.00 $ 75,600.00 20 $ 1,260.00 $
25,200.00 June. 16 25 $ 1,260.00 $ 31,500.00 35 $ 1,260.00 $
44,100.00 June. 21 35 $ 1,264.00 $ 44,240.00 35 $ 1,260.00 $
44,100.00 35 $ 1,264.00 $ 44,240.00 June. 28 35 $ 1,260.00
$ 44,100.00 26 $ 1,264.00 $ 32,864.00 9 $ 1,264.00 $ 11,376.00
Balance $ 310,776.00 26 $ 32,864.00