Question

You have your own business reselling 15th edition Kieso textbooks. You have the following transactions: Beginning inventory 2 textbooks @ $100 each 1/1 Purchased 1 textbook @$73 2/1 Sold 2 textbooks 3/1 purchase 2 textbook @$101 If you are to prepare the financial statement for this quarter, what are the numbers for COGS and ending inventory given the following cost flow assumptions?

Periodic FIFO LIFO AVG.

Perpetual FIFO LIFO AVG.

COGS

Ending inventory

Answer 1

Periodic System

FIFO

Cost of goods sold = 2 textbooks*$100 each = $200 (Beginning inventory)

Ending Inventory = Purchased on 1/1+Purchased on 3/1

= (1 textbook*$73)+(2 textbooks*$101)

= $73+$202 = $275

LIFO

Cost of goods sold = Cost of textbooks purchased on 3/1 (most recent purchase)

= 2 textbooks*$101 = $202

Ending Inventory = Beginning Inventory+Purchased on 1/1

= (2 textbooks*$100)+(1 textbook*$73)

= $200+$73 = $273

Average

Average cost per textbook = Cost of books available for sale/Total books available for sale

= ($200+$73+$202)/(2+1+2) = $475/5 books = $95 per book

Cost of goods sold = 2 textbooks*$95 = $190

Ending Inventory = 3 textbooks*$95 = $285

Perpetual System

FIFO

Cost of goods sold = 2 textbooks*$100 each = $200 (Beginning inventory)

Ending Inventory = Purchased on 1/1+Purchased on 3/1

= (1 textbook*$73)+(2 textbooks*$101)

= $73+$202 = $275

LIFO

Cost of goods sold = Purchase on 1/1+Balance from beginning inventory

= (1 textbook*$73)+(1 textbook*$100)

= $73+$100 = $173

Ending Inventory = Beginning Inventory+Purchased on 3/1

= (1 textbook*$100)+(2 textbook*$101)

= $100+$202 = $302

Average

Average cost per textbook = Cost of books available before sale on 2/1/Total books available for sale on 2/1

= ($200+$73)/(2+1) = $273/3 books = $91 per book

Cost of goods sold = 2 textbooks*$91 = $182

Ending Inventory = (1 textbook*$91)+(2 textbooks*$101)

= $91+$202 = $293