Question

Exercise 8-17 Novak Sports began operations on January 2, 2020. The following stock record card for footballs was taken from the records at the end of the year. Date Voucher Terms Units Received Unit Invoice Cost Gross Invoice Amount 1/15 10624 Net 30 75 $32 $2,400 3/15 11437 1/5, net 30 90 25 2,250 6/20 21332 1/10, net 30 115 24 2,760 9/12 27644 1/10, net 30 109 19 2,071 11/24 31269 1/10, net 30 101 17 1,717 Totals 490 $11,198 A physical inventory on December 31, 2020, reveals that 119 footballs were in stock. The bookkeeper informs you that all the discounts were taken. Assume that Novak Football Shop uses the invoice price less discount for recording purchases.

Compute the December 31, 2020, inventory using the FIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.) Ending Inventory using the FIFO method $

Compute the 2020 cost of goods sold using the LIFO method. (Round per unit and final answer to 2 decimal paces, e.g. 35.57.) Cost of Goods Sold using the LIFO method $

What method would you recommend to the owner to minimize income taxes in 2020, using the inventory information for footballs as a guide? FIFOLIFO

Answer 1

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Novak	A	B	C	D=(B-B*C)	E=D*A
Periodic FIFO	No. of Units	Invoice Cost	Discount	Net Cost	Total net cost
Purchased on Jan 15	75.00	32.00	0%	32.00	2,400.00
Purchased on Mar 15	90.00	25.00	1%	24.75	2,227.50
Purchased on Jun 20	115.00	24.00	1%	23.76	2,732.40
Purchased on Sep 12	109.00	19.00	1%	18.81	2,050.29
Purchased on Nov 24	101.00	17.00	1%	16.83	1,699.83
Total	490.00				11,110.02
Final Answer- FIFO
Ending Inventory	Units	Net Cost	Total net cost
From Purchases on Sep 12	18.00	18.81	338.58
From Purchases on Nov 24	101.00	16.83	1,699.83
Cost of ending inventory	119.00		2,038.41
Cost of goods sold			9,071.61
Cost of goods sold is total net cost less cost of ending inventory.
Final Answer- LIFO
Ending Inventory	Units	Net Cost	Total net cost
From Purchases on Jan 15	75.00	32.00	2,400.00
From Purchases on Mar 15	44.00	24.75	1,089.00
Cost of ending inventory	119.00		3,489.00
Cost of goods sold			7,621.02
Cost of goods sold is total net cost less cost of ending inventory.
The prices are falling so in order to minimize taxes the owner should use FIFO. Because FIFO gives higher cost of goods sold so the income will be lower and hence income taxes will also be lower.