Question

Problem 3 (25 points) Walmarket uses a periodic inventory system. It sells domestic appliances and one of the store's most popular products is a WM3 washing machine. The inventory quantities, purchases, and sales of this product for the most recent year are as follows.

Answer 1

Ans.(a). Valuation of Inventory as on 31-December and the cost of goods sold-

1. First-in, First-out: Cost of Inventory = [(17 x $256) + (5 x $252)] = $5,612 : and

Cost of Goods Sold for WM3 = [(12 x $239) + (15 x $245) + (21 x $247) + (3 x $252)] = $12,486

2. Last-in, First-out: Cost of Inventory = [(12 x $239) + (10 x $245)] = $5,318 : and

Cost of Goods Sold for WM3 = [(5 x $245) + (21 x $247) + (8 x $252) + (17 x $256)] = $12,780

3. Average Cost: ($18,097 / 73) = $247.90

Cost of Inventory = (22 x $247.90) = $5,454 : and

Cost of Goods Sold for WM3 = (51 x $247.90) = $12,643

Ans.(b). First-in, First-out method of valuation of inventory provides the most realistic balance sheet valuation of inventory in light of current replacement cost of WM3 units.

Ans.(c). Yes. First-in, First-out method of valuation of inventory provides the most realistic measure of income in light of current replacement cost of WM3 units.