Question

Problem 5

You Design Shirts, Inc. (YDSI) specializes in logo-imprinted t-shirts. YDSI 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 accounting period, December 31.  The inventory’s selling price is $12 per unit.  

Transactions	Unit Cost	Units	Total Cost
Inventory December 1	$4.50	300	$1,350
Sale, December 10		(250)
Purchase, December 12	$5.00	350	$1,750
Sale, December 17		(200)
Purchase, December 26	$6.00	80	$480

Required:

1. Compute the cost of goods available for sale at December 3
2. Compute the ending inventory, and cost of goods sold at December 31, under each of the following inventory costing methods:

1. Specific identification, assuming that the December 10 sale was from the beginning inventory and the December 17 sales was the December 12 purchase.

Cost of goods sold =

Ending Inventory =

Problem 5 continued

2. First-in, first-out [

Cost of goods sold =

Ending Inventory =

3. Weighted average method

Cost of goods sold =

Ending Inventory =

Problem 5 continued

3. Of the three methods, which will result in the highest gross profit?
4. Of the three methods, which will result in the lowest amount of income tax expense?
5. Of the three methods, which will result in the highest current ratio?
6. Using the First-in, first-out method, calculate to one decimal place the inventory turnover ratio and days to sell in the current year, assuming that inventory was $500 on January 1 of this year and cost of goods sold up to December 1 was $19,000. Evaluate these measures in comparison to an inventory turnover ratio of 12.0 during the previous year.

Answer 1