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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; cost of merchandise sold

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

Chapter 7, Problem 7.13EX, Periodic inventory by three methods; cost of merchandise sold The units of an item available for , example  1

There are 104 units of the item in the physical inventory at December 31. The periodic inventory system is used. Determine the inventory cost and the cost of merchandise sold by three methods, presenting your answers in the following form:

Chapter 7, Problem 7.13EX, Periodic inventory by three methods; cost of merchandise sold The units of an item available for , example  2

(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 and merchandise sold using first in first out method under periodic inventory system.

Explanation

The ending inventory is estimated to be 2,000 units. Therefore, the value of ending inventory consists of recently purchased items.

Ending Inventory(FIFO) =(98 units×$60)+(6 units×$58)=$5,880+$348=$6,228

Calculate the merchandise sold as follows:

Merchandise sold = Cost of merchandise available for sale – Ending inventory cost

(b)

To determine

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

(c)

To determine

value of inventory and merchandise sold using weighted average method under periodic inventory system.

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