Question

Alternative Inventory Methods

Garrett Company has the following transactions during the months of April and May:

Date	Transaction	Units	Cost/Unit
April 1	Balance	300
17	Purchase	200	$5.10
25	Sale	150
28	Purchase	100	5.70
May 5	Purchase	250	5.10
18	Sale	300
22	Sale	50

The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO cost flow assumptions.

Required:

1. Compute the inventories at the end of each month and the cost of goods sold for each month for the following alternatives:

1. FIFO periodic

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

2. FIFO perpetual

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

3. LIFO periodic

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

4. LIFO perpetual (Round your intermediate calculations to the nearest cent.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

5. Weighted average (Round unit costs to 4 decimal places and final answers to the nearest dollar.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

6. Moving average (Round unit costs to 2 decimal places and final answers to nearest dollar.)

   	Cost of Goods Sold	Ending Inventory
   April	$	$
   May	$	$

2. Reconcile the difference between the LIFO periodic and the LIFO perpetual results. If an amount is zero, enter "0".

April	Cost of Goods Sold	Ending Inventory
Difference	$	$
May	Cost of Goods Sold	Ending Inventory
Difference	$	$

3. If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?

If Garrett Company uses IFRS, it may report its inventory under ___________________________ . It may not use __________________ under IFRS because it is not consistent with any presumed physical flow of inventory. Also,_____________________________ is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use ___________________________ . Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income.

Answer 1

WORKINGS:

Units	Apr	May
Gds.Av.for Sale	600	700
Gds.Sold	150	350
End./Inv.	450	350

a. FIFO periodic
April
COGAS	((300*5)+(200*5.10)+(100*5.7))=	3090
COGS	150*5=	750
Ending Inv.	((150*5)+(200*5.10)+(100*5.7))=	2340
May
COGAS	((150*5)+(200*5.10)+(100*5.7))+(250*5.1)=	3615
COGS	((150*5)+(200*5.10)=	1770
Ending Inv.	(100*5.7)+(250*5.1)=	1845
b. FIFO perpetual
April
COGAS	((300*5)+(200*5.10)+(100*5.7))=	3090
COGS	150*5=	750
Ending Inv.	((150*5)+(200*5.10)+100*5.7)=	2340
May
COGAS	((150*5)+(200*5.10)+(100*5.7))+(250*5.1)=	3615
COGS	(150*5)+(150*5.10)+(50*5.10)=	1770
Ending Inv.	(100*5.7)+(250*5.1)=	1845
c. LIFO periodic
April
COGAS	((300*2)+(200*5.10)+(100*5.7))=	2190
COGS	(100*5.7)+(50*5.1)=	825
Ending Inv.	(300*2)+(150*5.10)=	1365
May
COGAS	(300*2)+(150*5.10)+(250*5.1)=	2640
COGS	(250*5.1)+(50*5.1)+(50*5.1)=	1785
Ending Inv.	(300*2)+(50*5.10)=	855
d. LIFO perpetual
April
COGAS	((300*2)+(200*5.10)+(100*5.7))=	2190
COGS	150*5.10=	765
Ending Inv.	((300*2)+(50*5.10)+(100*5.7))=	1425
May
COGAS	((300*2)+(50*5.10)+(100*5.7)+(250*5.1))=	2700
COGS	(250*5.1)+(50*5.7)+(50*5.7)=	1845
Ending Inv.	((300*2)+(50*5.10)=	855
e. Weighted av.
April
COGAS	(300*4)+(200*5.1)+(100*5.7)=	2790
COGS	150*4.65=	697.5
Ending Inv.	450*4.65=	2092.5
2790/600= 4.65
May
COGAS	(450*4.65)+(250*5.1)=	3367.5
COGS	350*4.8107=	1683.75
Ending Inv.	350*4.8107=	1683.75
3367.5/700=4.8107
f. Moving average
April
COGAS	(300*4)+(200*5.1)+(100*5.7)=	2790
COGS	150*4.44=	666
Ending Inv.	(350*4.44)+(100*5.7)	2124
((300*4)+(200*5.1))/500=4.44
May
COGAS	(350*4.44)+(100*5.7)+(250*5.1)=	3399
COGS	350*4.8557=	1699.50
Ending Inv.	350*4.8557=	1699.50
3399/700=4.8557

ANSWERS:
a. FIFO periodic
	COGS	End.Inv.
April	750	2340
May	1770	1845
b. FIFO perpetual
	COGS	End.Inv.
April	750	2340
May	1770	1845
c. LIFO periodic
	COGS	End.Inv.
April	825	1365
May	1785	855
d.LIFO perpetual
	COGS	End.Inv.
April	765	1425
May	1845	855
e. Weighted av.
	COGS	End.Inv.
April	697.5	2092.5
May	1683.75	1683.75
f.Moving average
	COGS	End.Inv.
April	666	2124
May	1699.5	1699.5

2..
LIFO	Periodic-Perpetual
April	COGS		Ending Inventory
Difference	825-765=	60	1365-1425=	-60
May	COGS		Ending Inventory
Difference	1785-1845=	-60	855-855=	0

3. If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?

If Garrett Company uses IFRS, it may report its inventory under FIFO or weighted average method. It may not use LIFO under IFRS because it is not consistent with any presumed physical flow of inventory. Also,LIFO method of valuation is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use LIFO. Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income.