Question

Trends by Tiffany sells high-end leather purses. The company has the following inventory transactions for the year.

Date	Transaction	Units	Cost	Total Cost
Jan. 1	Beginning inventory	20	$500	$	10,000
Apr. 9	Purchase	30	520		15,600
Oct. 4	Purchase	11	550		6,050
		61		$	31,650
Jan. 1−Dec. 31	Sales	52

Because trends in purses change frequently, Trends by Tiffany estimates that the remaining nine purses have a net realizable value at December 31 of only $350 each.

1. Using FIFO, calculate ending inventory and cost of goods sold.

2. Using LIFO, calculate ending inventory and cost of goods sold.

3-a. Determine the amount of ending inventory to report using lower of cost and net realizable value.

3-b. Record any necessary adjustment under (a) FIFO.

Answer 1

1

Ending inventory = 9 X 550 = 4,950

Cost of goods sold = 31,650 – 4,950 = 26,700

2

Ending inventory = 9 X 500 = 4,500

Cost of goods sold = 31,650 – 4,500 = 27,150

3-a

Ending inventory = 9 X 350 = 3,150

3 – b

Account                                           Debit     Credit

Cost of goods sold                          1,800

Inventory                                                         1,800

Adjustment amount = 4,950 – 3,150 = 1,800