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Accounting (Text Only)

26th Edition
Carl Warren + 2 others
ISBN: 9781285743615

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BuyFindarrow_forward

Accounting (Text Only)

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

Dymac Appliances uses the periodic inventory system. Details regarding the inventory of appliances at November 1, 2015, purchases invoices during the next 12 months, and the inventory count at October 31, 2016, are summarized as follows:

Chapter 7, Problem 7.5APR, Periodic inventory by three methods Dymac Appliances uses the periodic inventory system. Details , example  1

Instructions

1. Determine the cost of the inventory on October 31, 2016, by the first-in, first-out method. Present data in columnar form, using the following headings:

Chapter 7, Problem 7.5APR, Periodic inventory by three methods Dymac Appliances uses the periodic inventory system. Details , example  2

If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different u nit cost, use a separate line for each purchase.

2. Determine the cost of the inventory on October 31, 2016, by t he last-in, first -out method, following the procedures indicated in (1).

3. Determine the cost of the inventory on October 31, 2016, by the weighted average cost method, using the columnar headings indicated in (1).

4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices.

1.

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.

The value of inventory on October 31, 2016 using first in first out method under periodic inventory system.

Explanation

The tabular column showing inventory cost is presented as follows:

Model Quantity ($) Unit cost ($) Total cost ($)
A10 4 76 304
2 70 140
B15 6 184 1,104
2 170 340

2.

To determine

The value of inventory on October 31, 2016 using last in first out method under periodic inventory system.

3.

To determine

The value of inventory on October 31, 2016 using weighted average method under periodic inventory system.

4. (a)

To determine

To discuss: the method that would be preferred for income tax purposes in the period of rising prices.

(b)

To determine

To discuss: the method that would be preferred for income tax purposes in the period of declining prices.

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