Textbook Problem

Effects of FIFO and LIFO

Sheepskin Company sells to colleges and universities a special paper that is used for diplomas. Sheepskin typically makes one purchase of the special paper each year on January 1. Assume that Sheepskin uses a perpetual inventory system. You have the following data for the 3 years ending in 2019:

Required:

1. What would the ending inventory and cost of goods sold be for each year if FIFO is used?

2. What would the ending inventory and cost of goods sold be for each year if LIFO is used?

3. CONCEPTUAL CONNECTION For each year, explain the cause of the differences in cost of goods sold under FIFO and LIFO.