Question

P6-6A You are provided with the following information for Gobler Inc. Gobler Inc. uses the periodic method of accounting for its inventory transactions. Compare specific identification, FIFO, and LIFO under periodic method: use cost flow assumption to justify price increase. (LO2) March 1 Beginning inventory 2,000 liters at a cost of 60€ per liter. March 3 Purchased 2,500 liters at a cost of 65€ per liter. March 5 Sold 2,300 liters for $1.05 per liter. March 10 Purchased 4,000 liters at a cost of 72€ per liter. March 20 Purchased 2,500 liters at a cost of 80c per liter. March 30 Sold 5,200 liters for $1.25 per liter. Instructions (a) Prepare partial income statements through gross profit, and calculate the value of ending inventory that would be reported on the balance sheet, under each of the fol- lowing cost flow assumptions. (Round ending inventory and cost of goods sold to the nearest dollar.) (1) Specific identification method assuming: (i) The March 5 sale consisted of 1,000 liters from the March 1 beginning inven tory and 1,300 liters from the March 3 purchase; and (ii) The March 30 sale consisted of the following number of units sold from begin- ning inventory and each purchase: 450 liters from March 1; 550 liters from March 3; 2,900 liters from March 10; 1,300 liters from March 20. (2) FIFO. (3) LIFO. (b) How can companies use a cost flow method to justify price increases? Which cost flow method would best support an argument to increase prices? (a) Gross profit: (1) Specific identification $3,715 (2) FIFO (3) LIFO $3,930 $3,385

Answer 1

a)	Gobler Inc
	Income Statement ( Partial )
		Special Identification	FIFO	LIFO
	Sales Revenue	8,915.00	8,915.00	8,915.00
	Beginning Inventory	1,200.00	1,200.00	1,200.00
	Purchases	6,505.00	6,505.00	6,505.00
	Cost of Goods Available for Sales	7,705.00	7,705.00	7,705.00
	Ending Inventory	2,505.00	2,720.00	2,175.00
	Cost of Goods Sold	5,200.00	4,985.00	5,530.00
	Gross Profit / Loss	3,715.00	3,930.00	3,385.00
	Sales Revenue = ( 2,300 liters * $ 1.05 ) + ( 5,200 liters * $ 1.25 )
	= $ 8,915
	Cost of Goods available for sales
	Particulars	Units ( Liters )	Per Unit Cost	Total Cost
	Beginning	2000	0.6	1,200.00
	Purchases :
	Mar-03	2500	0.65	1,625.00
	Mar-10	4000	0.72	2,880.00
	Mar-20	2500	0.8	2,000.00
	Total	11000		7705
*	Special Identification
	Cost of Goods sold
	Sold on March 5
		Units ( Liters )	Per Unit Cost	Total Cost
		1000	0.6	600.00
		1300	0.65	845.00
		2300		1,445.00
	Sold on March 30
		Units ( Liters )	Per Unit Cost	Total Cost
		450	0.6	270.00
		550	0.65	358
		2900	0.72	2,088.00
		1300	0.8	1,040.00
		5200		3756
		Units ( Liters )	Per Unit Cost	Total Cost
	Total Cost of Goods sold	7500		5201
	Cost of Ending Inventory
		Units ( Liters )	Per Unit Cost	Total Cost
		550	0.6	330.00
		650	0.65	422.50
		1100	0.72	792.00
		1200	0.8	960.00
		3,500.00		2,505
**	FIFO
	Cost of Goods sold
	Goods Sold from	Units ( Liters )	Per Unit Cost	Total Cost
	Beginning	2000	0.6	1,200.00
	Purchases :
	Mar-03	2500	0.65	1,625.00
	Mar-10	3000	0.72	2,160.00
	Total	7500		4985
	Cost of Ending Inventory
		Units ( Liters )	Per Unit Cost	Total Cost
		1000	0.72	720.00
		2500	0.8	2,000.00
		3500		2720
**	LIFO
	Cost of Goods sold
	Goods Sold from	Units ( Liters )	Per Unit Cost	Total Cost
	Purchases:
	Mar-20	2500	0.8	2,000.00
	Mar-10	4000	0.72	2,880.00
	Mar-03	1000	0.65	650.00
	Total	7,500.00		5,530.00
	Cost of Ending Inventory
		Units ( Liters )	Per Unit Cost	Total Cost
		1500	0.65	975.00
		2000	0.6	1,200.00
		3500		2175
b)	To justify price increase, Companies may use the cost flow method that gives the highest cost anf lowest gross profit.
	LIFO wold be best method to support an argument to increase prices