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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615
Textbook Problem
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Periodic inventory by three methods

The units of an item available for sale during the year were as follows:

Chapter 7, Problem 7.12EX, Periodic inventory by three methods The units of an item available for sale during the year were as

There are 220 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last- in, first-out method, and (c) the weighted average cost method.

(a)

To determine

Periodic Inventory System

Periodic inventory system is a system, in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

First-in-First-Out

In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Last-in-Last-Out

In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Weighted -average cost method

Under weighted average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

value of inventory using first in first out method under periodic inventory system.

Explanation

The ending inventory is estimated to be 220 units. Therefore, the value of ending inventory consists of recently purchased items.

Ending Inventory(FIFO) =

(b)

To determine

value of inventory using last in first out method under periodic inventory system.

(c)

To determine

value of inventory using weighted average method under periodic inventory system.

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