Question

In: Accounting

Assume that a retailer’s beginning inventory and purchases of a popular item during January included (1)...

Assume that a retailer’s beginning inventory and purchases of a popular item during January included (1) 500 units at $9.00 in beginning inventory on January 1, (2) 650 units at $10.00 purchased on January 8, and (3) 950 units at $11.00 purchased on January 29. The company sold 550 units on January 12 and 750 units on January 30.


Required:

1. Calculate the cost of goods sold for the month of January under (a) FIFO (periodic calculation), (b) FIFO (perpetual calculation), (c) LIFO (periodic calculation), and (d) LIFO (perpetual calculation).

Solutions

Expert Solution

Solution

FIFO method states that goods purchased first should be sold first
LIFO method states that goods purchased later are sold first
Periodic method updates records at the end of the period
Records are updated at every transaction under perpetual method
FIFO periodic FIFO perpetual LIFO periodic LIFO perpetual
Beginning Inventory

4,500

(500x9)

4,500

(500x9)

4,500

(500x9)

4,500

(500x9)

Jan 8 Purchases

6,500

(650x10)

6,500

(650x10)

6,500

(650x10)

6,500

(650x10)

Jan 29 Purchases

10,450

(950x11)

10,450

(950x11)

10,450

(950x11)

10,450

(950x11)

Total cost of goods available 21,450 21,450 21,450 21,450
Units sold

             1,300

(550+750)

1,300

(550+750)

1,300

(550+750)

1,300

(550+750)

Cost of Goods sold

9,350

500x9 + 650x10

+(1300-500-650)x11

           

9,350

500x9 + 650x10

+(1300-500-650)x11

6,950

950x11 + (1300-950)x10

13,750

550x10+750x11

In order to save taxes, LIFO periodic should be used as maximum COGS will lead to lower income and hence lower taxes

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