Question

Periodic System— Calculating Ending Inventory and Cost of Sales using LIFO

The following information is available for Water Inc.

Date	Units	Unit Cost
January 1, 2020 (beginning inventory)	100	$50.00
Purchases: January 10, 2020	75	52.00
January 15, 2020	150	52.50
January 30, 2020	100	55.00

The company maintains a periodic inventory system. A physical inventory count shows 125 units in stock on January 31. What is (a) ending inventory on January 31, and (b) cost of goods sold for January, using the LIFO inventory method?

• Note: Round your final answers below to the nearest whole dollar.
• Use your rounded ending inventory answer to compute part b. cost of goods sold.

a. Ending inventory on January 31, 2020	Answer
b. Cost of goods sold for January	Answer

Answer 1

Answer a)

Value of ending inventory using LIFO method, periodic inventory system

Value of ending inventory

Under LIFO method using periodic inventory system, Value of ending inventory is calculated on the assumption that units of inventory which are latest bought will be sold first and so on. Thus value of ending inventory will be from the units of inventory which are first bought and moving forwards.

Date	Type	Number of Units	Cost per unit	Total Cost
Jan’1, 2020	Beginning Inventory	100	$ 50.00	$ 5,000.00
Jan'10, 2020	Purchases	25	$ 52.00	$ 1,300.00
Total	125		$ 6,300.00

Therefore value of ending inventory using LIFO method is $ 6,300.

Answer b)

Calculation of Cost of Goods sold under LIFO Method

Under LIFO method using periodic inventory system, cost of goods sold is calculated on the assumption that units of inventory which are latest bought will be sold first and so on. Thus the cost of goods sold will be from the units of inventory which are latest and moving backwards.

Date	Type	Number of Units	Cost per unit	Total Cost
Jan'10, 2020	Purchased	50	$ 52.00	$ 2,600.00
Jan'15, 2020	Purchased	150	$ 52.50	$ 7,875.00
Jan'30, 2020	Purchased	100	$ 55.00	$ 5,500.00
Total	300		$ 15,975.00

Therefore cost of Goods sold under LIFO method is $ 15,975.

Working Notes:

Calculation of number of units sold

Number of units sold = Number of units Beginning inventory + units purchased during the month – number of units in ending inventory

                                        = 100 units + (75 units + 150 units + 100 units) – 125 units

                                         = 300 units