Question

Tipton Processing maintains its internal inventory records using average cost under a perpetual inventory system. The following information relates to its inventory during the year: Jan. 1 Inventory on hand-92,000 units; cost $4.00 each. Feb. 14 Purchased 108,000 units for $5.00 each. Mar. 5 Sold 162,000 units for $14.00 each. Aug. 27 Purchased 62,000 units for $6.00 each. Sep. 12 Sold 72,000 units for $14.00 each. Dec. 31 Inventory on hand–28,000 units. Required: 1. Determine the amount Tipton would calculate internally for ending inventory and cost of goods sold using average cost under a perpetual inventory system. 2. Determine the amount Tipton would report externally for ending inventory and cost of goods sold using last-in, first-out (LIFO) under a periodic inventory system. 3. Determine the amount Tipton would report for its LIFO reserve at the end of the year. 4. Record the year-end adjusting entry for the LIFO reserve, assuming the balance at the beginning of the year was $9,200. Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 Required 4 Determine the amount Tipton would report for its LIFO reserve at the end of the year. LIFO Reserve < Required 2 Required 4 >

Answer 1

AVERAGE METHOD
	Inventory on hand	Cost of goods sold	Closing Balance
	Unit	Cost	Value	Unit	Cost	Value	Unit	Cost	Value
Beginning	92000	4	368000				92000	4	368000
Purchase	108000	5	540000				108000	5	540000
							200000	4.54	908000
				162000	4.54	735480	38000	4.54	172520
Purchase	62000	6	372000				62000	6	372000
							100000	5.45	544520
				72000	5.45	392400	28000	5.45	152600
LIFO
	Inventory on hand	Cost of goods sold	Closing Balance
	Unit	Cost	Value	Unit	Cost	Value	Unit	Cost	Value
Beginning	92000	4	368000				92000	4	368000
Purchase	108000	5	540000				108000	5	540000
				108000	5	540000
				54000	4	216000	38000	4	152000
Purchase	62000	6	372000				62000	6	372000
				62000	6	372000
				10000	4	40000	28000	4	112000
LIFO Reserve
Difference between different methods of inventory valuation
Inventory closing value as per Average Method	152600
Inventory closing value as per LIFO Method		112000
LIFO RESERVE				40600
4. Adjusting entry				JOURNAL
Lifo reserve		40600		Cost of goods sold		31400
(-) opening balance	-9200		Lifor Reserve			31400
Reserve needed to create	31400