Question

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h) Received $12,000 from customers billed in transaction (. 2 The Rock Shopuses a periodic Inventory system. The following data relates to its inventory: Inventory, January 1 300 units $5.00 Purchase, January 9 9 00 units $5.40 Purchase, January 19 210 units $6.00 A physical count on March 31 shows inventory on hand of 300 units. Instructions (show your work) (a) Determine the value that should be assigned to the ending inventory using the AVERAGE COST method (b) Determine the value that should be assigned to cost of goods sold using the average cost method 3) The Rock Shop uses a periodic inventory system. The following data relates toits inventory: Inventory, January 1 300 units $5.00 Purchase, January 9 900 units $5.40 Purchase, January 19 210 units $6.00 A physical count on March 31 shows inventory on hand of 300 units. Instructions (show your work) (a) Determine the value that should be assigned to the ending inventory using LIFO (b) Determine the value that should be assigned to cost of goods sold using FIFO Page 2 of 6

Answer 1

Periodic inventory system updates inventory records only at the end of reporting period concerned. FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods earlier. As a result, ending inventory will contain cost of recent purchases. LIFO stands for Last In First Out which means that cost of goods sold must consider cost of those goods recently. As a result, ending inventory will contain cost of initial purchases or beginning inventory. 2) Under Weighted Average Method: DATA TABLE: Units 300 Rate $5.0 Amount $1,500 Ending inventory of 300 units shall consist of 300 units from entire lot. Therefore, $5.4 $6.0 [Ref: Data Table] [Ref: Data Table] ($7620 / 1410] Beg. Bal. Purchases: On Jan. 9 On Jan. 19 Available for sale Ending units Units sold Available for sale - Dollar value Available for sale - Units Weighted Average cost per unit # of units in ending inventory Cost of Ending inventory Available for sale Cost of Goods Sold $4,860 $1,260 $7,620 $7,620 1,410 $5.40 300 $1,620 $7,620 $6,000 900 210 1,410 300 1,110 [1410 - 300] [300 units x $5.4] [Ref: Data Table] $7620 - $1620]

3a) Under LIFO: 3b) Under FIFO: Ending inventory of 300 units shall consist of 300 units from beginning inventory itself. Therefore, Ending inventory of 300 units shall consist of 210 units from Jan. 19's purchase and balance 90 units from Jan. 9's purchase (300 units x $5.0] From Beg. Bal. Cost of Ending inventory $1,500 $1,500 [90 units x $5.4] [210 units x $6.0] From Jan. 9 purchase From Jan. 19 purchase Cost of Ending inventory Available for sale Cost of Goods Sold $486 $1,260 $1,746 $7,620 $5,874 [Ref: Data Table] $7620 - $1746]