Question

To more efficiently manage its inventory, Treynor Corporation maintains its internal inventory records using first-in, first-out (FIFO) under a perpetual inventory system. The following information relates to its merchandise inventory during the year:

Jan.		1		Inventory on hand—20,000 units; cost $13.10 each.
Feb.		12		Purchased 70,000 units for $13.40 each.
Apr.		30		Sold 50,000 units for $20.90 each.
Jul.		22		Purchased 50,000 units for $13.70 each.
Sep.		9		Sold 70,000 units for $20.90 each.
Nov.		17		Purchased 40,000 units for $14.10 each.
Dec.		31		Inventory on hand—60,000 units

Required:
1. Determine the amount Treynor would calculate internally for ending inventory and cost of goods sold using first-in, first-out (FIFO) under a perpetual inventory system.
2. Determine the amount Treynor would report externally for ending inventory and cost of goods sold using last-in, first-out (LIFO) under a periodic inventory system.
3. Determine the amount Treynor would report for its LIFO reserve at the end of the year.
4. Record the year-end adjusting entry for the LIFO reserve, assuming the balance at the beginning of the year was $10,000.

Answer 1

1
Ending inventory	$838,000
Cost of Goods Sold	$1,611,000
Requirement 1. FIFO
Date	Purchase			Cost of Goods Sold			Inventory on Hand
	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1							20,000	13.10	$262,000
Feb.12	70,000	$13.40	$938,000				20,000	13.10	$262,000
							70,000	13.40	$938,000
Apr. 30				20,000	$13.10	$262,000	-	13.10	$0
				30,000	$13.40	$402,000	40,000	13.40	$536,000
Jul. 22	50,000	$13.70	685000				40,000	13.40	$536,000
							50,000	13.70	$685,000
Sep. 9				40,000	$13.40	$536,000	-	13.40	$0
				30,000	$13.70	$411,000	20,000	13.70	$274,000
Nov. 17	40,000	$14.10	$564,000				20,000	13.70	$274,000
							40,000	14.10	$564,000
Totals	160,000		$2,187,000	120,000		$1,611,000	60,000		$838,000

2
Ending inventory	$826,000
Cost of Goods Sold	$1,623,000
Requirement 1. LIFO
Date	Purchase			Cost of Goods Sold			Inventory on Hand
	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost	Quantity	Unit Cost	Total Cost
Jan. 1							20,000	13.10	$262,000
Feb.12	70,000	$13.40	$938,000				20,000	13.10	$262,000
							70,000	13.40	$938,000
Apr. 30				50,000	$13.40	$670,000	20,000	13.10	$262,000
							20,000	13.40	$268,000
Jul. 22	50,000	$13.70	685000				20,000	13.10	$262,000
							20,000	13.40	$268,000
							50,000	13.70	$685,000
Sep. 9				50,000	$13.70	$685,000	-	13.10	$0
				20,000	$13.40	$268,000	-	13.40	$0
							20,000	13.10	$262,000
Nov. 17	40,000	$14.10	$564,000				20,000	13.10	$262,000
							40,000	14.10	$564,000
Totals	160,000		$2,187,000	120,000		$1,623,000	60,000		$826,000

3
LIFO Reserve = FIFO inventory - LIFO Inventory
LIFO Reserve = $838,000 - $826,000 = $12,000
4
Balance in the Beginning Inventory = $10,000
Adjustment =$12,000 - $10,000 = $2,000
Date	Accounts Title	Debit	Credit
Dec. 31	Cost of Goods Sold	$2,000
	LIFO Reserve		$2,000
	(LIFO Reserve Adjusted)