A Four Methods of Inventory Valuation
On January 15,2011, BassTrack sold 1,000 Ace-5 fishing reels to Angler’s Warehouse.Immediately prior to this sale, BassTrack’s perpetual inventory records for Ace-5 reels included the following cost layers:
Purchase Date | Quantity | Unit Cost | Total Cost |
Dec. 12,2010 | 600 | $29 | $17,400 |
Jan. '9, 2011 | 900 | 32 | 28,800 |
Total on hand | 1,500 |
| $46,200 |
Instructions
Note:We present this problem in the normal sequence of the accounting cycle-that is, journal entries before ledger entries. However, you may find it helpful to work part b first.
a. Prepare a separate journal entry to record the cost of goods sold relating to the January 15 sale of 1,000 Ace-5 reels, assuming that BassTrack uses:
1. Specific identification (500 of the units sold were purchased on December 12, and the remaining 500 were purchased on January 9).
2. Average cost.
3. FIFO.
4. LIFO.
b. Complete a subsidiary ledger record for Ace-5 reels using each of the four inventory valuation methods listed above. Your inventory records should show both purchases of this product, the sale on January 15, and the balance on hand at December 12, January 9, and January 15. Use the formats for inventory subsidiary records illustrated on pages 343 - 345 of this chapter.
c. Refer to the cost of goods sold figures computed in part a. For financial reporting purposes, can the company use the valuation method that resulted in the lowestcost of goods sold if, for tax purposes, it used the method that resulted in the highestcost of goods sold? Explain.
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