Question

Carlson Auto Dealers Inc. sells a handmade automobile as its only product. Each automobile is identical; however, they can be distinguished by their unique ID number. At the beginning of 2018, Carlson had three cars in inventory, as follows:

Car ID	Cost
203	$	69,000
207		69,000
210		72,000

During 2018, each of the three autos sold for $99,000. Additional purchases (listed in chronological order) and sales for the year were as follows:

Car ID	Cost			Selling Price
211	$	69,000		$	99,000
212		69,000			102,000
213		70,500		not sold
214		72,000			105,000
215		75,000			109,500
216		73,500		not sold
217		78,000			114,000
218		75,300			115,500
219		81,000		not sold

Required:
1. Calculate 2018 ending inventory and cost of goods sold assuming the company uses the specific identification inventory method.
2. Calculate ending inventory and cost of goods sold assuming FIFO and a periodic inventory system.
3. Calculate ending inventory and cost of goods sold assuming LIFO and a periodic inventory system.
4. Calculate ending inventory and cost of goods sold assuming the average cost method and a periodic inventory system.

	Specific Identification	FIFO Periodic	LIFO Periodic	Average Cost Method Periodic
Ending inventory
Cost of goods sold

Answer 1

Sol:

Car ID	Cost $
203	69,000
207	69,000
210	72,000
211	69,000
212	69,000
213	70,500
214	72,000
215	75,000
216	73,500
217	78,000
218	75,300
219	81,000
Total cost of goods available for sale ( total 12 cars )	1026600

1. Specific identification inventory method :

Car ID 213, 216 and 219 is unsold, it indicates that these cars are in the ending inventory

Ending inventory = $70,500 + $73,500 + $81,000 = $225,000

Cost of goods sold = Total cost of goods available for sale - Ending inventory cost = $1026600 - $225,000 = $801,600

2. FIFO and a periodic inventory system :

In periodic inventory system, the transaction relating to the inventory are not updated immediately, but the same are updated at the end of a particular period.

In FIFO method those inventories are sold out first which are purchased first. It indicates that the ending inventory will be from the recent purchases.

Total 3 cars are unsold that will be in the ending inventory

Ending inventory = $81,000 + $75,300 + $78,000 = $234,300

Cost of goods sold = Cost of goods available for sale - ending inventory cost = $1026600 - $234,300 = $792,300

3. LIFO and a periodic inventory system :

In LIFO method those inventories are sold out first, which are purchased last i.e. purchased recently. It indicates that the ending inventory will be from the opening inventory and earlier purchases

Total 3 cars are unsold that will be in the ending inventory

Ending inventory = $69,000 + $69,000 + $72,000 = $210,000

Cost of goods sold = Cost of goods available for sale - ending inventory cost = $1,026,600 - $210,000 = $816,600

4. Average cost and a periodic inventory system :

Average cost per unit = cost of goods available for sale / units available for sale = $1,026,600 / 12 cars = $85,550per unit/car

Ending inventory = Average cost per unit * Ending inventory units = $85,550 * 3 cars = $256,650

Units sold = units available for sale - ending inventory units = 12 - 3 = 9

Cost of goods sold = Average cost per unit * Units sold = $85,550 * 9 cars = $769,950

	Specific Identification	FIFO Periodic	LIFO periodic	Average Cost Method Periodic
Ending inventory	$225,000	$234,300	$210,000	$256,650
Cost of goods sold	$801,600	$792,300	$816,600	$769,950