Question

Question 1.

Company Z had the following transactions in its first year of operations:

(1) On January 15, purchased 5,000 units of inventory for $20 each

(2) On March 1, purchased 10,000 units of inventory for $22 each

(3) On March 30, sold 7,000 units of inventory for $48 each

(4) On June 20, purchased 9,000 units of inventory for $25 each

(5) On August 10, sold 12,000 units of inventory for $50 each

(6) On September 3, sold 1,000 units of inventory $49 each

Company Z records transactions using a perpetual system. Calculate the cost of goods sold and ending inventory using (1) average cost, (2) FIFO, and (3) LIFO.

Company Z asks you to advise them on which inventory method to use. What method would you choose if the company wants to take out a loan from a bank in the near future that requires the company to meet a large threshold for its current assets’ value? What method would you choose if the company has a near-term investment opportunity that requires more cash on hand? Explain your answers.

Answer 1

The company should use FIFO method is the company requires to take loan in near future as closing stock value is higher in this methos rather than other method.

USe LIFO method for more cash in hands in near future.