Financial Accounting: An Integrated Statements Approach, 2nd Edition

Assume that the business in Exercise 6-7 maintains a perpetual inventory system, costing by the

first-in, first-out method. Determine the cost of merchandise sold for each sale and the inven-

tory balance after each sale, presenting the data in the form illustrated in Exhibit 5.

The following units of a particular item were available for sale during the year:

Beginning inventory 20 units at $45

Sale 15 units at $80

First purchase 31 units at $47

Sale 27 units at $80

Second purchase 40 units at $50

Sale 35 units at $80

The firm uses the perpetual inventory system, and there are 14 units of the item on hand at the

end of the year. What is the total cost of the ending inventory according to (a) fifo, (b) lifo?

The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 6 units at $28

Feb. 4 Purchase 12 units at $30

July 20 Purchase 14 units at $32

Dec. 30 Purchase 8 units at $33

There are 11 units of the item in the physical inventory at December 31. The periodic inventory

system is used. Determine the inventory cost by (a) the first-in, first-out method, (b) the last-in,

first-out method, and (c) the average cost method.

The units of an item available for sale during the year were as follows:

Jan. 1 Inventory 42 units at $120

Mar. 4 Purchase 58 units at $130

Aug. 7 Purchase 20 units at $136

Nov. 15 Purchase 30 units at $140

There are 36 units of the item in the physical inventory at December 31. The periodic inventory

system is used. Determine the inventory cost and the cost of merchandise sold by three meth-

ods, presenting your answers in the following form:

Cost

Inventory Method Merchandise Inventory Merchandise Sold

a. First-in, first-out $ $

b. Last-in, first-out

c. Average cost

Assume that a firm separately determined inventory under fifo and lifo and then compared the

results.

1. In each space below, place the correct sign [less than (), greater than (), or equal ()] for
   each comparison, assuming periods of rising prices.

a. Lifo inventory _________ Fifo Inventory

b. Lifo cost of goods sold _________ Fifo cost of goods sold

c. Lifo net income _________ Fifo net income

d. Lifo income tax _________ Fifo income tax

2. Why would management prefer to use lifo over fifo in periods of rising prices?

290 Chapter 6 Inventories

Exercise 6-8

Perpetual inventory using fifo

Goals3, 4

Inventory balance, March 31,

$1,330

Exercise 6-11

Periodic inventory by three

methods; cost of merchandise

sold

Goals3, 5, 6

a. Inventory, $5,016

Exercise 6-12

Comparing inventory methods

Goal 6

Exercise 6-9

Fifo, lifo costs under perpetual

inventory system

Goals3, 4

a. $700

Exercise 6-10

Periodic inventory by three

methods

Goals3, 5, 6

b. $318