Question

P6-2B Pete's Tennis Shop has the following transactions related to its top-selling Wilson tennis Calc racket for the month of August: inver sold and Total Cost inve (LO Unit Cost Units Transactions Date $1,280 $160 8 August 1 August 4 Beginning inventory Sale ($225 each) 5 1,500 150 10 Purchase August 11 August 13 August 20 August 26 August 29 8 Sale ($240 each) 140 1,400 10 Purchase Sale ($250 each) 1.430 130 Purchase $5.610 Required 1. Calculate ending inventory and cost of goods sold at August 31, using the specific identification method. The August 4 sale consists of rackets from beginning inventory, the August 13 sale consists of rackets from the August 11 purchase, and the August 26 sale consists of one racket from beginning inventory and 10 rackets from the August 20 purchase. 2. Using FIFO, calculate ending inventory and cost of goods sold at August 31. 3. Using LIFO, calculate ending inventory and cost of goods sold at August 31. 4. Using weighted-average cost, calculate ending inventory and cost of goods sold at August 31. 5. Calculate sales revenue and gross profit under each of the four methods. 6. Comparing FIFO and LIFO, which one provides the more meaningful measure of ending inventory? Explain. 7. If Pete's chooses to report inventory using LIFO, record the LIFO adjustment.

Answer 1

Solution

Cost of good sold=cost of good available for sale - cost of ending inventory

Cost of goods available for sale:

Date	transactions	units	units cost	total cost
August 1	beginning inventory	8	160	1280
August 11	purchases	10	150	1500
August 20	purchases	10	140	1400
August 29	purchases	11	130	1430
	Total	39		5610
	Sales	24 (5+8+11)
	Ending inventory	15 (39-24)

1. Specific identification method:

Cost of good sold

Date	transaction	units	unit cost($)	total cost($)
August 4	sale	5	160	800
August 13	sale	8	150	1200
August 26	sale	1	160	160
		10	140	1400
	Cost of good sold(a)	24		3560
	Cost of good available for sale(b)	39		5610
	Cost of ending inventory(b-a)	15		2050

2. FIFO

Cost of ending inventory(15 units):

= 11 units from August 29 purchases + 4 units from August 20 purchases

=(11×$130) +(4×$140)

=$1,990

Cost of good sold= cost of goods available for sale - cost of ending inventory

=$5610-$1,990

=$3,620

3. LIFO:

Cost of ending inventory(15 units):

= 8 units from beginning inventory + 7 units from August 11purchases

=(8×$160) +(7×$150)

=$2,330

Cost of good sold= cost of goods available for sale - cost of ending inventory

=$5610-$2,330

=$3,280

4. Weighted average method:

Weighted Per unit cost= cost of goods available for sale / number of units

=$5610/39 units

=$143.8462 per unit

Cost of ending inventory=15 units ×$143.8462

=$2,158

Cost of good sold= 24 units ×$143.8462

=$3,452