Question

March 4 Stephen Company sold $3,000 of merchandise on account to Elijah Company. The credit terms were 2/10, n/60. The cost of the merchandise was $1,800. March 6 Elijah Company paid transportation cost of $100 on the March 4 purchase from Stephen Company. March 8 Stephen Company sold $2,000 of merchandise on account to Elijah Company. The credit terms were n/40. The cost of the merchandise was $1,400. March 10 Stephen Company paid transportation cost of $100 for delivery of merchandise sold to Elijah Company on March 8. March 16 Stephen Company issued Elijah Company a $400 credit memorandum for merchandise returned because the merchandise was damaged. The merchandise was purchased by Elijah Company on account on March 8. The cost of the merchandise returned was $280. March 18 Stephen Company received payment from Elijah Company for purchase of March 8. March 21 Stephen Company sold $4,800 of merchandise on account to Elijah Company. The credit terms were 2/10, n/30. The cost of the merchandise was $2,880. March 22 Stephen Company received payment from Elijah Company for purchase of 4 March. March 31 Stephen Company received payment from Elijah Company for purchase of 21 March

Answer 1

If FIFO method is followed, the inevntories will be valued at last purchase costs. Accordingly, high value purchases will be included in the cost of goods sold. In case of weighted average method, the valuation of closing stock will be based on weighted average price wherein value of clsoing stock will be more than last purchased items.

Accordingly, weighted average method will give less cost of goods sold and lower value of closing inventory.