Question

Gladstone Limited tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions		Units				Unit Cost
Beginning inventory, January 1			1,800				$	5.00
Transactions during the year:
a.	Purchase, January 30		2,500					6.20
b.	Sale, March 14 ($10 each)		(1,450	)
c.	Purchase, May 1		1,200					8.00
d.	Sale, August 31 ($10 each)		(1,900	)

Required:

1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31, under each of the following inventory costing methods. For Specific identification, assuming that the March 14, sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31, was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1. (Do not round Weighted average cost per unit. Round your final answers to the nearest dollar amount.)

Goods available for sale Ending inventory Cost of goods sold a. Weighted average cost. b. First-in, first-out. c. Specific identification.

2-a. Of the three methods, which will result in the highest gross profit?

• Weighted average cost

• First-in, first-out

• Specific identification

2-b. Of the three methods, which will result in the lowest income taxes?

• Weighted average cost

• First-in, first-out

• Specific identification

Answer 1

Ques 1
	Goods available for sale	Ending Inventory	Cost of goods sold
Weighted average	$                           34,100.00	$            13,330.00	$               20,770.00
FIFO	$                           34,100.00	$            15,490.00	$               18,610.00
Specific identification	$                           34,100.00	$            19,834.00	$               14,266.00
Working
Weighted average
	Units	Cost	total cost
Beg inventory	1800	$                       5.00	$                 9,000.00
jan30 purchase	2500	$                       6.20	$               15,500.00
may 1 purchase	1200	$                       8.00	$                 9,600.00
	5500	$                       6.20	$               34,100.00
Weighted average
COGS	3350	$                       6.20	$               20,770.00
(1450+1900)*6.20
Ending Inventory	2150	$                       6.20	$               13,330.00
FIFO
COGS	1450	$                       5.00	$                 7,250.00
	350	$                       5.00	$                 1,750.00
	1550	$                       6.20	$                 9,610.00
	3350		$               18,610.00
Ending Inventory	950	$                       6.20	$                 5,890.00
	1200	$                       8.00	$                 9,600.00
	2150		$               15,490.00
Specific Identification
COGS	580	$                       5.00	$                 2,900.00
	870	$                       6.20	$                 5,394.00
	1220	$                       5.00	$                 6,100.00
	680	$                       8.00	$                 5,440.00
	3350		$               19,834.00
Ending Inventory	1630	$                       6.20	$               10,106.00
	520	$                       8.00	$                 4,160.00
	2150		$               14,266.00
Ques 2	W.avg	FIFO0	Specific Ident.
Sales	$                                 33,500	$                  33,500	$                     33,500
Less:COGS	$                                 20,770	$                  18,610	$                     14,266
Gross Profit	$                                 12,730	$                  14,890	$                     19,234
Higesht GP	Specific Identification
Ques 3
Lowest income Taxes	W.avg
as lower gross profit