Question

1. Perpetual Inventory Using LIFO

   Beginning inventory, purchases, and sales data for prepaid cell phones for May are as follows:

   Inventory		Purchases		Sales
   May 1	4,000 units at $21	May 10	2,000 units at $23	May 12	2,800 units
   		May 20	1,800 units at $25	May 14	2,400 units
   				May 31	1,200 units

   a. Assuming that the perpetual inventory system is used, costing by the LIFO method, determine the cost of merchandise sold for each sale and the inventory balance after each sale, presenting the data in the form illustrated in Exhibit 4. Under LIFO, if units are in inventory at two different costs, enter the units with the HIGHER unit cost first in the Cost of Merchandise Sold Unit Cost column and LOWER unit cost first in the Inventory Unit Cost column.

   Schedule of Cost of Merchandise Sold
   LIFO Method
   Prepaid Cell Phones
   Date	Quantity Purchased	Purchases Unit Cost	Purchases Total Cost	Quantity Sold	Cost of Merchandise Sold Unit Cost	Cost of Merchandise Sold Total Cost	Inventory Quantity	Inventory Unit Cost	Inventory Total Cost
   May 1								$	$
   May 10		$	$
   May 12					$	$
   May 14
   May 20
   May 31
   May 31	Balances					$			$

   b. Based upon the preceding data, would you expect the inventory to be higher or lower using the first-in, first-out method?
   

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Answer 1

Ans. A	Schedule of Cost of Merchandise Sold
	LIFO Method
	Prepaid Cell Phones
	Purchase				Cost of goods sold			Balance
	Date	Quantity	Rate	Total cost	Quantity	Rate	Total cost	Quantity	Rate	Total cost
	1-May	4000	$21.00	$84,000				4000	$21.00	$84,000
	10-May	2000	$23.00	$46,000				4000	$21.00	$84,000
								2000	$23.00	$46,000
	12-May				2000	$23.00	$46,000
					800	$21.00	$16,800	3200	$21.00	$67,200
	14-May				2400	$21.00	$50,400	800	$21.00	$16,800
	20-May	1800	$25.00	$45,000				800	$21.00	$16,800
								1800	$25.00	$45,000
	31-May				1200	$25.00	$30,000	800	$21.00	$16,800
								600	$25.00	$15,000
	Total				Cost of goods sold		$143,200	Ending inventory		$31,800
	*In LIFO method the units that have purchased last, are released the first one and ending inventory units
	remain from the first purchase.
Ans. B	While using the FIFO method, ending inventory remains from the last purchases, and the unit cost of last purchase
	is $25 which is the highest unit cost, so we can say that the ending inventory from FIFO method will be higher than
	the LIFO method.