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Intermediate Accounting: Reporting...

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

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Alternative Inventory Methods Garrett Company has the following transactions during the months of April and May:

Chapter 7, Problem 6P, Alternative Inventory Methods Garrett Company has the following transactions during the months of

The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO cost flow assumptions.

Required:

  1. 1. Compute the inventories at the end of each month and the cost of goods sold for each month for the following alternatives:
    1. a. FIFO periodic
    2. b. FIFO perpetual
    3. c. LIFO periodic
    4. d. LIFO perpetual
    5. e. Weighted average (Round unit costs to 4 decimal places.)
    6. f. Moving average (Round unit costs to 4 decimal places.)
  2. 2. Next Level Reconcile and explain the difference between the LIFO periodic and the LIFO perpetual results.
  3. 3. Next Level If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?

1(a)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using FIFO method under periodic system.

Explanation

FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the ending inventory consist the recent cost for the remaining unsold items.

Periodic inventory system: The method or system of recording the transactions related to inventory occasionally or periodically is referred as periodic inventory system.

Compute the ending inventory units:

Particulars

April

(in units)

May

(in units)

Beginning inventory400550
Add: Net Purchases300250
Units available for sale700800
Less: Sales(150)(350)
Ending inventory550450

Table (1)

Compute the ending inventory for April and May using FIFO under Periodic system:

Ending inventory for April
ParticularsAmount
250 units at $5 per unit (250×$5)$ 1,250
200 units at $5.50 per unit (250×$5.50)$ 1,100
100 units at $5.75 per unit (100×$5.75)$ 575
Ending inventory$ 2,925

Table (2)

Ending inventory for May
ParticularsAmount ($)
100 units at $5.50 per unit (100×$5.50)$ 550
100 units at $5

1 (b)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using FIFO method under perpetual system.

1 (c)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using LIFO method under periodic system.

1 (d)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using LIFO method under perpetual system.

1 (e)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using average cost.

1 (f)

To determine

Calculate the ending inventories at the end of each month and the cost of goods sold for each month using moving average.

2.

To determine

Reconcile the differences in the result of LIFO periodic and LIFO perpetual.

3.

To determine

Identify the alternative that would be acceptable by Company G, if it follows IFRS and also explain the reasons.

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