Question

Required information Exercise 5-20 Effect of inventory cost flow on ending inventory balance and gross margin LO 5-6 [The following information applies to the questions displayed below.] The Shirt Shop had the following transactions for T-shirts for 2018, its first year of operations: Jan. 20 Apr. 21 July 25 Sept. 19 Purchased Purchased Purchased Purchased 480 units 140 units 240 units 100 units $11 = $13 - $15 = $16 - $5,280 1.820 3,600 1,600 During the year, The Shirt Shop sold 800 T-shirts for $21 each. Exercise 5-20 Part a Required a. Compute the amount of ending inventory The Shirt Shop would report on the balance sheet, assuming the following cost flow assumptions: (1) FIFO, (2) LIFO, and (3) weighted average. Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount. LEO Weighted LIFO Average Ending inventory

Answer 1

Requirement 1

	FIFO	LIFO	Weighted Average
Ending Inventory	$                 2,500	$                   1,760	$             2,050

Requirement 2

	FIFO	LIFO	Difference
Gross profit	$           7,000.00	$             6,260.00	$ 740.00

Working

	Units	Cost per unit	value
Beginning Balance			$ 0
Purchases
	480	$                   11.00	$ 5,280
	140	$                   13.00	$ 1,820
	240	$                   15.00	$ 3,600
	100	$                   16.00	$ 1,600
Total	960		$ 12,300

.

Average Cost of Inventory
Units	(A)	960
Total Cost	(B)	$ 12,300
Average Cost	(C=B/A)	$                   12.81

.

FIFO
Total Units Available for sale		960
Units Sold		800
Closing Stock in Units		160
Valuation
Ending Inventory	100	@	$             16.00	$ 1,600
	60	@	$             15.00	$ 900
Value Of Ending Inventory				$ 2,500
Cost of Goods sold				$ 9,800
LIFO
Total Units Available for sale		960
Units Sold		800
Closing Stock in Units		160
Valuation
Ending Inventory	160	@	$             11.00	$ 1,760
	0	@	$               8.00	$ 0
Value Of Ending Inventory				$              1,760
Cost of Goods sold	12300 minus 1760			$            10,540
Weighted Average method
Total Units Available for sale		960
Units Sold		800
Closing Stock in Units		160
Valuation
Ending Inventory	160	@	$             12.81	$              2,050
Value Of Ending Inventory				$              2,050
Cost of Goods sold	(Total Purchase and opening stock Minus Closing Stock)			$            10,250

.

	FIFO	LIFO	Difference
Sales revenue	$         16,800.00	$           16,800.00
Cost of goods sold	$           9,800.00	$           10,540.00
Gross profit	$           7,000.00	$             6,260.00	$740.00