Question

E8.23 (LO3,5) (FIFO and LIFO—Periodic) Tom Brady Shop began operations on January 2, 2019. The following stock record card for footballs was taken from the records at the end of the year.

Date	Voucher	Terms	Units Received	Unit Invoice Cost	Gross Invoice Amount
1/15	10624	Net 30	50	$20	$1,000
3/15	11437	1/5, net 30	65	16	1,040
6/20	21332	1/10, net 30	90	15	1,350
9/12	27644	1/10, net 30	84	12	1,008
11/24	31269	1/10, net 30	76	11	836
	Totals		365		$5,234

A physical inventory on December 31, 2019, reveals that 110 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Tom Brady Shop uses the invoice price less discount for recording purchases.

Instructions

a. Compute the December 31, 2019, inventory using the FIFO method. (Round all unit costs to two decimal places.)

b. Compute the 2019 cost of goods sold using the LIFO method.

c. What method would you recommend to the owner to minimize income taxes in 2019, using the inventory information for footballs as a guide?

Answer 1

Solution:

1.) FIFO method

Date	Voucher	Terms	Units Received	Unit Invoice cost	Total cost	Balance
15 Jan.	10624	Net 30	50	$20	$1,000	$1,000
15 Mar.	11437	1/5, net 30	65	$16	$1,040	$2,040
20 June	21332	1/10, net 30	90	$15	$1,350	$3,390
12,Sep.	27644	1/10, net 30	84	$12	$1008	$4,398
24 Nov.	31269	1/10, net 30	76	$11	$836	$5,234
		Sales	50	$20	$1,000	$4,234
		Sales	65	$16	$1,040	$3,194
		Sales	90	$15	$900	$2,294
		Sales	50	$12	$600	$1,694
31 Dec.		Ending inventory	110			$1,694

Cost of goods sold = Beginning inventory + purchases - ending inventory

=0+$5,234 - $1,694 =$3,540

2.) LIFO method

LIFO								Cost of goods sold	Amount
Date	Voucher	Terms	Units Received	Unit invoice cost	Total cost	Balance		Beginning inventory	0
15 Jan	10624	Net 30	50	$20	$1,000	$1,000		Add: Purchases	$5,234
15 Mar.	11437	1/5, net 30	65	$16	$1,040	$2,040		Less: ending inventory	$1960
20 June	21332	1/10, net 30	90	$15	$1,350	$3,390		Cost of goods sold	$3,274
12 Sep	27644	1/10 net 30	84	$12	$1,008	$4,398
24, Nov.	31269	1/10 net 30	76	$11	$836	$5,234
		Sales	76	$11	$836	$4,398
		Sales	84	$12	$1,008	$3,390
		Sales	90	$15	$1,350	$2,040
		Sales	5	$16	$80	$1,960
Dec. 31		Ending inventory	110			$1,960

3.)

We recommend for FIFO method to the owner to minimize income taxes in 2019. Because, the higher expenses you report, the lower your net income, and thus the lower income tax liability.