Question

The following information is available concerning Stillwater Inc.: Units 200 Unit Cost $ 10 11 Beginning inventory Purchases: March 5 June 12 August 23 October 2 300 400 250 150 $ $ $ $ 12 13 15 Stillwater, which uses a perpetual system, sold 1000 units for $22 each during the year. Sales occurred on the following dates: February 12 April 30 July 7 September 6 December 3 Units 150 200 200 300 150 Required 1. Calculate ending inventory and cost of goods sold for each of the following three methods: a. Moving average b. FIFO C. LIFO 2. For each of three methods, compare the results with those of Carter in Exercise 5-25. Which method gives a different answer depending on whether a company uses a periodic or a perpetual inventory system? 3. Assume the use of the perpetual system and an estimated tax rate of 30%. How much more or less (indicate which) will Stillwater pay into taxes by using LIFO instead of FIFO? Explain your answer.

Answer 1

1. Moving Average -

Purchase Moving Average Cost of Goods Sold Unts Rate Cost Date Unts Rate Cost Unts 200 150 $ 10 $ 1,500 50 300 $ 11 $ 3,300 350 200 $ 11$ 2,171 150 Beg. Bal Feb 12 Mar 5 Apr 30 Jun 12 Jul 7 Aug 23 Sept 6 Oct 2 Balance Rate Cost $ 10.00 $2,000 $ 10.00 $ 500 $ 10.86$ 3,800 $ 10.86$ 1,629 $ 11.69 $ 6,429 $ 11.69 $ 4,091 $ 12.23 $ 7,341 $ 12.23 $ 3,670 $ 13.16 $ 5,920 $ 13.16 $ 3,947 400 $ 12 $ 4,800 550 200 $ 12$ 2,338 350 250 $ 13 $3,250 600 300 $ 12$ 3,670 300 150 $ 15$ 2,250 450 Dec 3 150 $ 13 $ 1,973 300 1100 $ 12.36 $ 13,600 1000 $11.65 $ 11,653 300 $ 13.16 $ 3,947

Income Statement -

Income Statement (MA) Sales Revenue $ 22,000 (-) Cost of Goods Sold $(11,653) Gross Profit $ 10,347 (-) Tax Rate 30% $ (3,104) Net Income $ 7,243

2. FIFO -

Purchase FIFO Cost of Goods Sold Unts Rate Cost Date Unts Rate Cost Unts 200 Beg. Bal Feb 12 Mar 5 Balance Rate Cost $ 10.00 $2,000 $ 10.00 $ 500 $ 10.86$ 3,800 150 $ 10 $ 1,500 50 300 $ 11 $ 3,300 350 50 Apr 30 $ $ 10$ 500 11$ 1,650 150 $ 11.00 $ 1,650 150 Jun 12 400 $ 12 $ 4,800 550 $ 11.73 $ 6,450 150 Jul 7 $ $ 11$ 1,650 12$ 600 350 $ 12.00 $ 4,200 50 Aug 23 250 $ 13$ 3,250 600 300 $ 12 $ 3,600 300 Sept 6 Oct 2 $ 12.42 $ $ 12.83$ $ 13.56 $ 7,450 3,850 6,100 150 $ 15$ 2,250 450 50 Dec 3 $ $ 12 $ 600 13 $ 1,300 300 $ 14.00 $ 4,200 100 1100 $ 12.36 $ 13,600 1000 $ 11.40 $ 11,400 300 $14.00 $ 4,200

Income Statement -

Income Statement (FIFO) Sales Revenue $ 22,000 (-) Cost of Goods Sold $(11,400) Gross Profit $ 10,600 (-) Tax Rate 30% $ (3,180) Net Income $ 7,420

3. LIFO -

Purchase LIFO Cost of Goods Sold Unts Rate Cost Date Unts Rate Cost Unts 200 150 $ 10 $ 1,500 50 Beg. Bal Feb 12 Mar 5 Apr 30 Jun 12 300 $ 11 $ 3,300 350 Balance Rate Cost $ 10.00 $2,000 $ 10.00 $ 500 $ 10.86$ 3,800 $ 10.67 $ 1,600 $ 11.64 $ 6,400 $11.43 $ 4,000 $ 12.08$ 7,250 200 $ 11 $ 2,200 150 400 $ 12 $ 4,800 550 Jul 7 200 $ 12 $ 2,400 350 Aug 23 250 $ 13$ 3,250 600 250 Sept 6 $ $ 13$ 3,250 12 $ 600 300 $ 11.33 $ 3,400 50 Oct 2 150 $ 15 $ 2,250 450 $ 12.56 $ $ 11.33 $ 5,650 3,400 Dec 3 150 $ 15$ 2,250 300 1100 $ 12.36 $ 13,600 1000 $ 12.20 $ 12,200 300 $ 11.33 $ 3,400

Income Statement -

Income Statement (LIFO) Sales Revenue $ 22,000 (-) Cost of Goods Sold $(12,200) Gross Profit $ 9,800 (-) Tax Rate 30% $ (2,940) Net Income $ 6,860

According to Different methods of inventory valuation - FIFO Method give good profit.