Question

Gladstone Company 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. Unit Units Cost 1,800 $50 Transactions Beginning inventory, January 1 Transactions during the year: a. Purchase, January 30 h Sale, March 14 ($100 each) c. Purchase, May 1 Sale, August 31 ($100 62 2,500 (1,450) 1,200 (1.900) 80 d. each) Assuming that for Specific identification method (item 1d) 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. 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: Amount of Goods Available for Sale Ending Inventory Cost of Goods Sold a. Last-in, first-out n Weighted average cost c. First-in, first-out Specific identification 2-a. Of the four methods, which will result in the highest gross profit? Last-in, first-out Weighted average cost First-in, first-out Specific identification

Answer 1

a. Last in First Out b. Weighted Average cost c. First-in, First Out d. Specific Identification Amount of goods Available for Ending sale Inventory $ 341,000 $ 111,700 $ 341,000 $ 133,300 341,000 $ 154,900 341,000 $ 142,660 Cost of goods sold $ 229,300 $ 207,700 $ $ 198,340 3,350 Working Notes Total Units sold (1,450 +1,900) Ending Inventory Beginning Inventory Add: Purchases (2,500 + 1,200) Less: Sales Ending Inventory 1,800 3,700 (3,350) 2,150

Cost of goods sold Cost per cost of goods # of Units 1 unit sold Ending Inventory Cost per Ending unit Inventory $ 50.00 90,000 | # of Units 1,800 350 $ 62.00 $ 21,700 a) LIFO Cost of Goods Available For sale Cost of goods # of Units Cost per unit available for sale Beginning Inventory 1,800 $ 50.00 $ 90,000 Purchases: Jan 30 2,500 $ 62.00 155,000 May 1 1,200 $ 80.00 96,000 5,500 341,000 Notes Under LIFO Method goods bought last should be sold first Total Sales units 3,350 Less: Sale of May 1 Purchases (1,200) Sale from Jan 30 Purchases 2,150 2,150 1,200 3,350 $ 62.00 $ 80.00 $ 133,300 96,000 229,300 2,150 111,700 b) Weighted Average Cost of Goods Available For sale Cost of goods sold Average Cost per cost of goods # of Units 1 unit sold Ending Inventory Average Cost per Ending unit Inventory Average Cost per unit Cost of goods available for sale $ 90,000 # of Units 1,800 # of Units Beginning Inventory Purchases: Jan 30 May 1 $ 2,500 1,200 5,500 155,000 96,000 $ 62.00 $ 341,000 3,350 $ 62.00 $ 207,700 2,150 $ 62.00 $ 133,300 Average cost per unit Cost of goods available for sale/ Units available for sale 341,000 / 5,500 $ 62.00

c) FIFO Cost of Goods Available For sale Cost of goods Cost per unit available for sale 1,800 $ 50.00 $ 90,000 Cost of goods sold Cost per cost of goods #of Units unit sold 1,800 $ 50.00 $ 90,000 Ending Inventory Cost per Ending unit Inventory # of Units Beginning Inventory Purchases: Jan 20 Jan 30 1,550 $ 62.00 96,100 $ 2,500 1,200 $ $ 62.00 80.00 155,000 96,000 341,000 950 1,200 2,150 $ $ 62.00 80.00 58,900 96,000 154,900 5,500 $ 3,350 $ 186,100 Under FIFO method goods bought first should be sold first. Total Sales units 3,350 Less: Sale of beginning Inventory (1,800) Sale from Jan 30 Purchases 1,550

d) Specific Identification Cost of Goods Available For sale Cost of goods # of Units Cost per unit available for sale 1,800 $ 50.00 $ 90,000 Cost of goods sold Cost per cost of goods # of Units unit sold 1,800 $ 50.00 $ 90,000 Ending Inventory Cost per Ending unit Inventory $ - $ # of Units - Beginning Inventory Purchases: Jan 30 May 1 2,500 1,200 5,500 $ $ 62.00 80.00 155,000 96,000 341,000 870 $ 62.00 680 $ 80.00 3,350 53,940 54,400 198,340 1,630 520 2,150 $ $ 62.00 80.00 101,060 41,600 142,660 $ Calculation of Units sold March 14 Sale 1,450 units (2/5 from the beginning Inventory) (1,450 2/5) (3/5 from January Purchases) (1,450 x 3/5) 580 870 1,900 units (1,800 - 580) 1,220 August 31 Sales Balance in Beginning Inventory August sale from May 1 Purchases Total Sale Less: Beginning Inventory May 1 Purchases 1,900 (1,220) 680

2-a) First in, First out Working Notes Total Sales Revenue Number of Units sold Sale price per unit Total Sales revenue $ (3,350 3,350 100 $ 100) $ 335,000 Calculation of Gross Profit Sales revenue Less: Cost of goods sold Gross Profit Last in Last out Weighted Average First in First out Specific Identification | $ 335,000 $ 335,000 $ 335,000 $ 335,000 (229,300) (207,700)| (186,100) (198,340) | $ 105,700 $ 127,300 $ 148,900 $ 136,660