Question

Comprehensive Accounting Cycle Review 6

On December 1, 2017, Carla Vista Co. had the account balances shown below.

		Debits				Credits
Cash		$4,640		Accumulated Depreciation—Equipment		$1,380
Accounts Receivable		3,760		Accounts Payable		2,900
Inventory (2,700 x $0.50)		1,350		Common Stock		10,800
Equipment		19,400		Retained Earnings		14,070
		$29,150				$29,150

The following transactions occurred during December.

Dec. 3		Purchased 3,700 units of inventory on account at a cost of $0.78 per unit.
5		Sold 4,100 units of inventory on account for $0.90 per unit. (It sold 2,700 of the $0.50 units and 1,400 of the $0.78.)
7		Granted the December 5 customer $270 credit for 300 units of inventory returned costing $240. These units were returned to inventory.
17		Purchased 2,200 units of inventory for cash at $0.80 each.
22		Sold 2,100 units of inventory on account for $0.88 per unit. (It sold 2,100 of the $0.78 units.)

Adjustment data:

1.		Accrued salaries and wages payable $400.
2.		Depreciation on equipment $200 per month.
3.		Income tax expense was $200, to be paid next year.

(a) Compute ending inventory and cost of goods sold under FIFO, assuming Carla Vista Co. uses the periodic inventory system.

Ending Inventory		$
Cost of Goods Sold		$

(b) Compute ending inventory and cost of goods sold under LIFO, assuming Carla Vista Co. uses the periodic inventory system.

Ending Inventory		$
Cost of Goods Sold		$

Answer 1

In case of FIFO method the goods which are purchased first are sold first and thus latest goods purchased are kept as inventory.
In case of LIFO method the goods which are purchased latest are sold first and thus earlier goods are held as inventory
Calculation of goods available for sale
	Units	Rate	Value
1-Dec	2700	$0.50	$1,350.00
3-Dec	3700	$0.78	$2,886.00
17-Dec	2200	$0.80	$1,760.00
	8600		$5,996.00
a.
Calculation of ending inventory under FIFO method
Ending inventory	Units available - Units sold
Ending inventory	8600-(4100-300+2100)
Ending inventory	2700
2,700 units would be from purchases of 17th Dec of 2,200 and remaining 500 units would be from purchases of 03rd Dec
Ending inventory	(2200*0.80)+(500*0.78)
Ending inventory	$2,150
Calculation of cost of goods sold
Goods available for sale	$5,996
Less: Ending inventory	$2,150
Cost of goods sold	$3,846
b.
Calculation of ending inventory under LIFO method
Under LIFO method 2,700 units of ending inventory would be from beginning inventory of 2,700.
Ending inventory	2700*0.50
Ending inventory	$1,350
Calculation of cost of goods sold
Goods available for sale	$5,996
Less: Ending inventory	$1,350
Cost of goods sold	$4,646