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Alternative Inventory Methods Garrett Company has the following transactions during the months of April and May:...

Alternative Inventory Methods

Garrett Company has the following transactions during the months of April and May:

Date Transaction Units Cost/Unit
April 1 Balance 300
      17 Purchase 200 $5.10
      25 Sale 150
      28 Purchase 100 5.70
May 5 Purchase 250 5.10
      18 Sale 300
      22 Sale 50

The cost of the inventory on April 1 is $5, $4, and $2 per unit, respectively, under the FIFO, average, and LIFO cost flow assumptions.

Required:

1. Compute the inventories at the end of each month and the cost of goods sold for each month for the following alternatives:

  1. FIFO periodic
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  
  2. FIFO perpetual
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  
  3. LIFO periodic
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  
  4. LIFO perpetual (Round your intermediate calculations to the nearest cent.)
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  
  5. Weighted average (Round unit costs to 4 decimal places and final answers to the nearest dollar.)
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  
  6. Moving average (Round unit costs to 2 decimal places and final answers to nearest dollar.)
    Cost of Goods Sold Ending Inventory
    April $   $  
    May $   $  


2. Reconcile the difference between the LIFO periodic and the LIFO perpetual results. If an amount is zero, enter "0".

April Cost of Goods Sold Ending Inventory
Difference $   $  
May Cost of Goods Sold Ending Inventory
Difference $   $  

3. If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?

If Garrett Company uses IFRS, it may report its inventory under  . It may not use   under IFRS because it is not consistent with any presumed physical flow of inventory. Also,   is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use  . Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income.

Solutions

Expert Solution

a. FIFO periodic
COGS End.Inv.
April 750 2340
May 1770 1845
b. FIFO perpetual
COGS End.Inv.
April 750 2340
May 1770 1845
c. LIFO periodic
COGS End.Inv.
April 825 1365
May 1785 855
d.LIFO perpetual
COGS End.Inv.
April 765 1425
May 1845 855
e. Weighted av.
COGS End.Inv.
April 697.5 2092.5
May 1683.75 1683.75
f.Moving average
COGS End.Inv.
April 666 2124
May 1699.5 1699.5
2..
LIFO Periodic-Perpetual
April COGS Ending Inventory
Difference 825-765= 60 1365-1425= -60
May COGS Ending Inventory
Difference 1785-1845= -60 855-855= 0
3. If Garrett uses IFRS, which of the previous alternatives would be acceptable, and why?
If Garrett Company uses IFRS, it may report its inventory under FIFO or weighted average method. It may not use LIFO under IFRS because it is not consistent with any presumed physical flow of inventory. Also,LIFO method of valuation is not allowed for tax purposes in most other countries, so there is no tax incentive for a company to use LIFO. Note that companies that use IFRS and have rising inventory costs will report a higher income because they include holding gains in income

WORKINGS:

Units Apr May
Gds.Av.for Sale 600 700
Gds.Sold 150 350
End./Inv. 450 350
a. FIFO periodic
April
COGAS ((300*5)+(200*5.10)+(100*5.7))= 3090
COGS 150*5= 750
Ending Inv. ((150*5)+(200*5.10)+(100*5.7))= 2340
May
COGAS ((150*5)+(200*5.10)+(100*5.7))+(250*5.1)= 3615
COGS ((150*5)+(200*5.10)= 1770
Ending Inv. (100*5.7)+(250*5.1)= 1845
b. FIFO perpetual
April
COGAS ((300*5)+(200*5.10)+(100*5.7))= 3090
COGS 150*5= 750
Ending Inv. ((150*5)+(200*5.10)+100*5.7)= 2340
May
COGAS ((150*5)+(200*5.10)+(100*5.7))+(250*5.1)= 3615
COGS (150*5)+(150*5.10)+(50*5.10)= 1770
Ending Inv. (100*5.7)+(250*5.1)= 1845
c. LIFO periodic
April
COGAS ((300*2)+(200*5.10)+(100*5.7))= 2190
COGS (100*5.7)+(50*5.1)= 825
Ending Inv. (300*2)+(150*5.10)= 1365
May
COGAS (300*2)+(150*5.10)+(250*5.1)= 2640
COGS (250*5.1)+(50*5.1)+(50*5.1)= 1785
Ending Inv. (300*2)+(50*5.10)= 855
d. LIFO perpetual
April
COGAS ((300*2)+(200*5.10)+(100*5.7))= 2190
COGS 150*5.10= 765
Ending Inv. ((300*2)+(50*5.10)+(100*5.7))= 1425
May
COGAS ((300*2)+(50*5.10)+(100*5.7)+(250*5.1))= 2700
COGS (250*5.1)+(50*5.7)+(50*5.7)= 1845
Ending Inv. ((300*2)+(50*5.10)= 855
e. Weighted av.
April
COGAS (300*4)+(200*5.1)+(100*5.7)= 2790
COGS 150*4.65= 697.5
Ending Inv. 450*4.65= 2092.5
2790/600= 4.65
May
COGAS (450*4.65)+(250*5.1)= 3367.5
COGS 350*4.8107= 1683.75
Ending Inv. 350*4.8107= 1683.75
3367.5/700=4.8107
f. Moving average
April
COGAS (300*4)+(200*5.1)+(100*5.7)= 2790
COGS 150*4.44= 666
Ending Inv. (350*4.44)+(100*5.7) 2124
((300*4)+(200*5.1))/500=4.44
May
COGAS (350*4.44)+(100*5.7)+(250*5.1)= 3399
COGS 350*4.8557= 1699.50
Ending Inv. 350*4.8557= 1699.50
3399/700=4.8557

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