Question

MC MR 3. (14 points) Hogwallop Company uses the periodic inventory method and had the following inventory information will Unit Cost 1/1 Beginning Inventory Total Cost 150 $ 600 1/20 Purchase 2.400 7/25 Purchase 10/20 Purchase Units 400 200 310 1,060 1.400 2.480 $6,880 A physical count of inventory on December 31 revealed that there were 380 units on hand. Instructions Answer the following independent questions and show computations supporting your answers. 1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is 2. Assume that the company uses the Average-Cost method. The value of the ending inventory on December 31 is $ 3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is 4. Assume that the company used the FIFO method. The value of the cost of goods sold on December 31 is 5. Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?

Answer 1

FIFO METHOD
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
1/1	Beginning inventory	150	$                4.00	$600	150	$           4.00	$600
Purchases:
1/20	Purchases	400	$                6.00	$2,400	400	$           6.00	$2,400
7/25	Purchases	200	$                7.00	$1,400	130	$           7.00	$910	70	$           7.00	$490
10/20	Purchases	310	$                8.00	$2,480				310	$           8.00	$2,480
	Total	1,060		$6,880	680		$3,910	380		$2,970
Weighted Average Cost Method
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
1/1	Beginning inventory	150	$                4.00	$600
Purchases:
1/20	Purchases	400	$                6.00	$2,400
7/25	Purchases	200	$                7.00	$1,400
10/20	Purchases	310	$                8.00	$2,480
	Total	1,060	$6.49	$6,880	680	$6.49	$4,414	380	$6.49	$2,466
LIFO METHOD
		COST OF GOODS AVAILABLE FOR SALE			COST OF GOODS SOLD			ENDING INVENTORY
Date	Particulars	No. of Units	Cost Per unit	Total	No. of Units	Cost Per unit	Cost of Goods Sold	No. of Units	Cost Per unit	Ending invetory
1/1	Beginning inventory	150	$                4.00	$600				150	$           4.00	$600
Purchases:
1/20	Purchases	400	$                6.00	$2,400	170	$           6.00	$1,020	230	$           6.00	$1,380
7/25	Purchases	200	$                7.00	$1,400	200	$           7.00	$1,400
10/20	Purchases	310	$                8.00	$2,480	310	$           8.00	$2,480
	Total	1,060		$6,880	680		$4,900	380		$1,980
SOLUTION : 1	Ending inventory as FIFO=	$2,970
SOLUTION : 2	Ending inventory as per Average =	$2,466
SOLUTION : 3	Ending inventory as LIFO=	$1,980
SOLUTION : 4	Cost of Goods Sold as per FIFO=	$3,910
SOLUTION : 5	FIFO income will be greater than LIFO by $ 2,970 - $ 1,980 = $ 990