Question

Whispering Sports began operations on January 2, 2020. The following stock record card for footballs was taken from the records at the end of the year Units Received Voucher Date 1/15 61 Unit Invoice Cost $26 21 20 16 Terms Net 30 1/5, net 30 1/10, net 30 1/10, net 30 1/10, net 30 10624 11437 21332 27644 31269 Totals 3/15 6/20 9/12 11/24 76 101 Gross Invoice Amount $1,586 1,596 2,020 1,520 1,218 $7.940 95 87 14 420 A physical inventory on December 31, 2020, reveals that 118 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Whispering Football Shop uses the invoice price less discount for recording purchases.

Answer 1

1.FIFO

• First Out (FIFO) is an accounting method in which assets purchased or acquired first are disposed of first. FIFO assumes that the remaining inventory consists of items purchased last.
• We have 118 football in stock which as per FIFO consist of 87 which where purchased in november and 31 which were purchased in September.
• Value of closing Stock
  • 87 Footballs purchsed in November    87 * $14 = $1,218
  • 31 Footballs purchsed in September 31 * $16 = $496
  • Total Value as on 31 December, 2020 $1,714

2.LIFO

• LIFO is an accounting method in which assets purchased or acquired last are disposed of first.LIFO assumes that the remaining inventory consists of items purchased earlier.
• We have 118 football in stock which as per FIFO consist of 61 which where purchased in January and 57 which were purchased in March.
• Value of closing Stock
  • 61 Footballs purchsed in January   61 * $26 = $1,586
  • 57 Footballs purchsed in March 57 * $21 = $1,197
  • Total Value as on 31 December, 2020   $2,783
• Value of Cost of goods sold
  • = Gross Invoice amount - Value of closing stock
  • = $7,940 - $2,783 = $5,157

3.Method reccomendation

• FIFO, as its has lower value of stock as compared to LIFO.