Question

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Transactions		Units			Unit Cost
Beginning inventory, January 1			2,700		$	45
Transactions during the year:
a.	Purchase, January 30		3,050			60
b.	Sale, March 14 ($100 each)		(2,350	)
c.	Purchase, May 1		1,750			75
d.	Sale, August 31 ($100 each)		(2,000	)

Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Required:

1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

1. 2-a. Of the four methods, which will result in the highest gross profit?

• Last-in, first-out

• Weighted average cost

• First-in, first-out

• Specific identification

1. 2-b. Of the four methods, which will result in the lowest income taxes?

• Last-in, first-out

• Weighted average cost

• First-in, first-out

• Specific identification

Answer 1

Amount of goods available for sale				=	$ 148,500.00
Ending inventory				=	3150 units
Cost of goods sold				=	$141000+$146250
				=	$ 287,250.00

Amount of goods available for sale				=	$ 215,250.00
Ending inventory				=	3150	units
Cost of goods sold				=	$105750+$114750
				=	$ 220,500.00

Amount of goods available for sale				=	$ 211,650.00
Ending inventory				=	3150	units
Cost of goods sold				=	$1269000+$97200
				=	$ 224,100.00

2.a) Since the Cost of goods sold is lowest under First-in, first out method, gross profit will be highest here

b) Since the cost of goods sold is highest under Last-in, first out method, gross profit will be lowest here and income tax will be lowest here.