Question

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31 Units 1,700 Unit Cost 45 Transactions Beginning Inventory, January 1 Transactions during the year 0. Purchase, January 30 b. Sale, March 14 (5100 each) C. Purchase, May 1 d. Sale, August 31 (5100 each) 3,800 (2,100) 2,500 (2,600) Assuming that for Specific identification method (item id) the March 14 sale was selected two-fifths from the beginning inventory and three fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1

Answer 1

Periodic inventory - It refers to a system where stocktaking is usually done periodically, say once or twice in a year.

Ending Inventory on 31st Aug = 3300 Units

Date	Beginning	purchase	sale	Ending
1-Jan	1700			1700
30-Jan	1700	3800		5500
14-Mar	5500		2100	3400
1-May	3400	2500		5900
31-Aug	5900		2600	3300

Last In First Out - The last in first out method of costing is based on the assumption that the last items purchased are the first to be used. the balance on hand is priced at the cost of the earliest purchases.

3300 units are from 1st jan units remaining units are from 30th jan units

so Ending Inventory Cost = 1700@45 + 1600@56

= 1700*45 + 1600*56

= 166100

Amount of Goods available for sale = 1700*45 + 3800*56 + 2500*75

= 76500 + 212800 + 187500

= 476800

COGS = Amount of goods available for sale - Ending Inventory

= 476800 - 166100

= 310700

Weighted Average -

Periodic Weighted Average price = Total Cost of purchase during the accounting period / Total Quantity purchased during the accounting period

= 476800/8000

= 59.6

Ending inventory cost = 3300*59.6

= 196680

Cost of Goods sold = Amount of goods available for sale - Ending Inventory

= 476800 - 196680

= 280120

FIFO - The First In First Out method assumes that items first received are the first to be issued and that the requisitions are priced at the cost at which these items were placed in stock.

Ending Inventory Cost = 2500@75 + 800*56

= 2500*75 + 800*56

= 187500 + 44800

= 232300

COGS = 476800 - 232300

= 244500

(d.) Specific Identification Method -

Amount of goods available for sale = 476800

Calculation of COGS

Sale of 14th March = 2100*2/5*45(2/5th from the beginning inventory) + 2100*3/5*56(3/5th from the purchase of 30th jan)

= 2100*2/5*45 + 2100*3/5*56

= 840*45 + 1260*56

= 37800 + 70560

= 108360

Sale of 31st August = remaining beginning inventory (1700-840)*45 + (2500 Units - Remaining beginning inventory)*75

= 860*45 + (2500-860)*75

= 38700 + 123000

= 161700

COGS = 161700 + 108360

= 270060

Ending Inventory = 476800(Goods available for sale) - 270060 (COGS)

= 206740

		Amounts of Goods available for sale	Ending Inventory	Cost of Goods Sold
a	Last In First Out	476800	166100	310700
b	Weighted Average Method	476800	196680	280120
c	First In First Out	476800	232300	244500
d	Specific Identification	476800	206740	270060

2 (a)

		Amounts of Goods available for sale	Ending Inventory	Cost of Goods Sold	Net sales	Gross Profit (Net sales - COGS)
a	Last In First Out	476800	166100	310700	470000	159300
b	Weighted Average Method	476800	196680	280120	470000	189880
c	First In First Out	476800	232300	244500	470000	225500
d	Specific Identification	476800	206740	270060	470000	199940

so from above FIFO method which will result in highest gross profit.

2(b)

Lowest income tax = lowest gross profit

so in LIFO (Last In first Out) from the above table.

Please check with your answer and let me know.