   Chapter 7, Problem 5P ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

#### Solutions

Chapter
Section ### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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# Cost of Goods Sold As an accountant for Lee Company, your supervisor gave you the following calculations of the gross profit for the first quarter: The three alternative cost flow assumptions are FIFO, average, and LIFO (the alternatives are not necessarily presented in this sequence). Lee uses the periodic inventory system. The computation of the cost of goods sold under each alternative is based on the following data: Required:Prepare schedules computing the ending inventory (in units and dollars) and proving the cost of goods sold shown here under each of the three alternatives.

To determine

Prepare the ending inventory and cost of goods sold schedule under the three alternatives given.

Explanation

Cost of goods sold: Cost of goods sold is the total of all the expenses incurred by a company to sell the goods during the given period.

Prepare the ending inventory schedule of Company L:

 Particulars Units Beginning inventory 12,000 Add: Net Purchases 18,000 Units available for sale 30,000 Less: Sales (10,000) Ending inventory 20,000

Table (1)

Prepare the cost of goods sold schedule of Company L:

 Company L Schedule for Cost of goods sold For the Quarter ended 31st March Particulars FIFO LIFO Average Cost Beginning inventory $240,000$ 240,000 $240,000 Add: Net Purchases$ 400,000 $400,000$ 400,000 Cost of goods available for sale $640,000$ 640,000 $640,000 Less: Ending inventory ($ 440,000) ($412,000) ($ 426,667) Cost of goods sold $200,000$ 228,000 $213,333 Table (2) Compute the ending inventory under average cost method:  Particulars Amount ($) 20,000 units at \$21...

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