Question

1.

For Whitehair Company, beginning inventory is $12,000 and ending inventory is $15,000. Yearend account balances are:

Freight-In		$1,100
Purchases		50,000
Purchase Discounts		800
Purchase Returns and Allowances		1,250
Sales Discounts		2,500
Sales Returns and Allowances		3,600

Whitehair’s Cost of Goods Purchased is

For Whitehair Company, beginning inventory is $12,000 and ending inventory is $15,000. Yearend account balances are: $1,100 50,000 800 Freight-In Purchases Purchase Discounts Purchase Returns and Allowances Sales Discounts Sales Returns and Allowances 1,250 2,500 3,600 Whitehair's Cost of Goods Purchased is $46,050. $49,050. $47,950. $51,100.

2. In a period of inflation, which cost flow method produces the highest net income?

Answer 1

1. $49,050

Cost of goods purchased = purchases - purchase discounts - purchase returns&allowances + freight

Cost of goods purchased = 50000 - 800 - 1250 + 1100

= $49,050

2. FIFO

In a period of inflation, FIFO method produces the highest net income.