Concept explainers
Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements; apply lower-of-cost-or-market rule; calculate inventory turnover ratio. The following series of transactions occurred during 2009:
January 1 Beginning inventory was 70 units at $10 each
January 15 Purchased 100 units at $11 each
February 4 Sold 60 units at $20 each
March 10 Purchased 50 units at $12 each
April 15 Sold 70 units at $20 each
June 30 Purchased 100 units at $13 each
August 4 Sold 110 units at $20 each
October 1 Purchased 80 units at $14 each
December 5 Sold 50 units at $21 each
Requirements
- 1. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the FIFO cost flow assumption.
- 2. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the LIFO cost flow assumption.
- 3. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic record-keeping system and the weighted average cost flow assumption.
- 4. Which of the three methods will result in the highest cost of goods sold for the year ended December 31, 2009?
- 5. Which of the three methods will provide the most current ending inventory value for the
balance sheet at December 31, 2009? - 6. How will the differences between the methods affect the income statement for the year and the balance sheet at year end?
- 7. Calculate the company’s inventory turnover ratio and average days in inventory for the year for each method in items 1, 2, and 3.
- 8. At the end of the year, the current replacement cost of the inventory is $1,100. Indicate at what amount the company’s inventory will be reported using the lower-of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).
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