Question

Beginning Inventory, purchases, and sales data for portable DVD players are as follows: Apr. 1 Inventory 50 units $66 10 Sale 37 units 15 Purchase 22 units $69 20 Sale 17 units Sale 11 units Purchase 36 units $73 The business maintains a perpetual inventory system, costing by the first-in, Erst out method Determine the cost of the merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form ustrated in Exhibit a. Under FIFO, units are in inventory at two different costs, enter the units with the LOWER unit cost first in the cost of Merchandise Sold Unit Cost column and in the Inventory Unit Cost column. Cost of the Merchandise Sold Schedule First-in, First-out Method Portable DVD Players Quantity Purchases Purchases Quantity Cost of Cost of Merchandise Cost of Merchandise Inventory Inventory Inventory wate Purchased Unit Cost Total Cost Merchandise Sold Sold Unit Cost Sald Total Cost quantity Unit Cost Next > Check My Work

Answer 1

a. Under FIFO Inventory method Date Quantity Cost of Cost of Quantity Purchases Purchases Cost of Merchandise Merchandise Inventory Inventory Inventory Purchased Unit Cost Total Cost Merchandise Sold Unit Sold Total Quantity Unit Cost Total Cost Sold Cost Cost Apr. 1 Apr. 10 Apr. 15 37 $ 66 $ 2,442 22 $ 69 $ 1,518 50 $ 13 $ 13 $ 22 $ 18 $ 66 $ 66 $ 66 $ 69$ 69 $ 3,300 858 858 1,518 1,242 Apr. 20 858 13 $ 4 $ 11$ 66 $ 69 $ 69 $ 276 759 Apr. 24 Apr. 30 36 $ 73 $ 2,628 7 $ 7 $ 36 $ 69 $ 69 $ 73 $ 483 483 2,628 - b. Under LIFO Inventory method Date Quantity cost of cost of Quantity Purchases Purchases Cost of Merchandise Merchandise Inventory Inventory Inventory Purchased Unit Cost Total Cost Merchandise Sold Unit Sold Total Quantity Unit Cost Total Cost Sold Cost Cost 48 Apr. 1 Apr. 10 Apr. 15 3771 11 63 74 4662 11 Apr. 20 36 74 2 664 3408 781 781 4662 781 1998 781 1332 781 1332 1872 - Apr. 24 74 666 - Apr. 30 24 7 8 1872 - 24|

Comparing Inventory Methods: 1. FIFO Inventory<LIFO Inventory (43 UNITS vs 53 units) 2. FIFO Cost of merchandise sold<LIFO Cost of merchandise sold ($4335 vs $5977) 3. FIFO net income > LIFO Net income (since the costs are less, income would be more) 4. FIFO Income taxes > LIFO Income taxes (since the income is more, the taxes would be more) b. The management would prefer to use LIFO over FIFO in period of rising prices because: 1. The income shown on the company's tax return would be lower if LIFO rather than FIFO were used; thus, there is a tax advantage of using LIFO