Question

✓1. $18,545 PR 6-5B Periodic inventory by three methods Obj. 2,4 Pappa's Appliances uses the periodic inventory system. Details regarding the inventory of appli- ances at January 1, purchases invoices during the year, and the inventory count at December 31 are summarized as follows: Purchases Invoices BAC TEMPLATE Model C55 D11 F32 H29 K47 S33 X74 Inventory, January 1 3 at $1,040 9 at 639 240 6 at 305 6 at 5 at 1st 3 at $1,054 7 at 645 3 at 260 3 at 310 8 at 531 4 at 222 6 at 36 2nd 3rd 3 at $1,060 3 at $1,070 6 at 666 6 at 675 1 at 260 1 at 280 3 at 316 4 at 317 4 at 5496 at 542 4 at 232 8 at 37 7 at 39 Inventory Count, December 31 4 11 2 4 8 2 7 520 4 at 35 Instructions 1. Determine the cost of the inventory on December 31 by the first-in, first-out method. Present data in columnar form, using the following headings: Model Quantity Unit Cost Total Cost If the inventory of a particular model comprises one entire purchase plus a portion of another purchase acquired at a different unit cost, use a separate line for each purchase. 2. Determine the cost of the inventory on December 31 by the last-in, first-out method, following the procedures indicated in (1). 3. Determine the cost of the inventory on December 31 by the weighted average cost method, using the columnar headings indicated in (1). 4. Discuss which method (FIFO or LIFO) would be preferred for income tax purposes in periods of (a) rising prices and (b) declining prices,

Answer 1

	Pappa's Appliances
1)	FIFO Inventory
	Model	2nd Purchase Invoice		3rd Purchase Invoice			Invntory
		(A )	(B)	(C )	(D)	(C )+(A)	(C )*(D )+(A)*(B)
		Units	Amount	Units	Amount	Units	Amount
	C55	1	$                      1,060.00	3	$                      1,070.00	4	$                        4,270.00
	D11	5	$                          666.00	6	$                          675.00	11	$                        7,380.00
	F32	1	$                          260.00	1	$                          280.00	2	$                            540.00
	H29			4	$                          317.00	4	$                        1,268.00
	K47	2	$                          549.00	6	$                          542.00	8	$                        4,350.00
	S33	2	$                          232.00			2	$                            464.00
	X74			7	$                            39.00	7	$                            273.00
					Total		$                      18,545.00
				Under FIFO method : Units which are purchased first are sold first.
2)	LIFO Inventory
	Model	Beginning Inventory		1st Purchase Invoice			Invntory
		(A)	(B)	(C )	(D)	(A)+(C )	(A)*(B)+(C )*(D )
		Units	Amount	Units	Amount	Units	Amount
	C55	3	1040	1	1054	4	$                        4,174.00
	D11	9	639	2	645	11	$                        7,041.00
	F32	2	240			2	$                            480.00
	H29	4	305			4	$                        1,220.00
	K47	6	520	2	531	8	$                        4,182.00
	S33			2	222	2	$                            444.00
	X74	4	35	3	36	7	$                            248.00
							$                      17,789.00
	Under LIFO method: Units which are purchased last are sold first.
3)	Weighted Average Method
			(A)	(B)	(C )=(A)/(B)	(D )	(D )*(C )
		Average cost per unit	Total Amount	Total Units	Average cost per unit	Inventory Units	Total Cost
	C55=	(3*$1040+3*$1054+3*$1060+3*$1070)=	$                    12,672.00	12	$                      1,056.00	4	$                        4,224.00
	D11=	(9*$639+7*$645+6*$666+6*$675)=	$                    18,312.00	28	$                          654.00	11	$                        7,194.00
	F32=	(5*$240+3*$260+1*$260+1*$280=	$                      2,520.00	10	$                          252.00	2	$                            504.00
	H29=	(6*$305+3*$310+3*$316+4*$317)=	$                      4,976.00	16	$                          311.00	4	$                        1,244.00
	K47=	(6*$520+8*$531+4*$549+6*$542=	$                    12,816.00	24	$                          534.00	8	$                        4,272.00
	S33=	(4*$222+4*$232)	$                      1,816.00	8	$                          227.00	2	$                            454.00
	X74	(4*$35+6*$36+8*$37+7*$39)	$                          925.00	25	$                            37.00	7	$                            259.00
						Total	$                      18,151.00
4)	Rising Prices: In case of rising prices LIFO method is better because higher cost of goods sold and less net income as compare to other methods,and lower income tax.
	Declining Prices: In case of declining prices FIFO method is better because of less net income and less income tax.