Question

Name two recognized methods of estimating the cost of ending inventory.                                          

Assuming periodic inventory procedure, what effect would an understatement of ending inventory have on the different items on the financial statements?                                          
                                          
Balance Sheet Income Statement                  
Current Assets ------------------ Cost of Goods Sold -------------------
Total Assets ------------------ Gross Margin -------------------
Retained Earnings --------------- Net Income --------------------
Total Liabilities and Retained Earnings ------------------   
                                          
Both __________-__________, __________-__________ and __________-__________, __________-__________ methods of inventory valuation are assumptions as to the flow of costs.                                          
                                          
Following is a summary of beginning inventory, purchases, and sales. At what amount would the inventory be priced assuming, the first-in, first-out method is used under perpetual invventory procedure?                                          
                                          
                                          
Beg. Inv., Jan. 1               2,400 units @ $8.80                          
Purchases:                                          
   Jan. 8 5,600 units @ $9.00                          
   Mar. 15 2,000 units @ $9.10                          
   Jul. 28 2,800 units @ $9.50                          
   Nov. 30 400 units @ $9.70                          
Sales:                                          
   Feb. 13 3,000 units                          
   Jun. 9 2,800 units                          
   Sep. 22    1,400 units                          

Answer 1

Note:- As per Chegg guidelines if more than one question is posted than we liable to answer only first question.

1. Name two recognized methods of estimating the cost of ending inventory:-

There are two methods for estimating ending inventory:

1. Gross Profit Method
2. Retail Method

1. Gross Profit Method. The gross profit method for estimating inventory uses the information contained in the top portion of a merchandiser's multiple-step income statement

2. Retail Method. The retail method can be used by retailers who have their merchandise records in both cost and retail selling prices.

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