Question

Suppose that David adopted the last-in, first-out (LIFO) inventory-flow method for his business inventory of widgets (purchase prices below).

	Purchase	Direct		Other		Total
Widget	Date	Cost		Costs		Cost
#1	August 15	$	2,100	$	100	$	2,200
#2	October 30		2,200		150		2,350
#3	November 10		2,300		100		2,400

In late December, David sold widget #2 and next year David expects to purchase three more widgets at the following estimated prices:

	Purchase	Estimated
Widget	Date	Cost
#4	Early spring	$	2,600
#5	Summer		2,260
#6	Fall		2,400
a. What cost of goods sold and ending inventory would David record if he elects to use the LIFO method this year? b. If David sells two widgets next year, what will be his cost of goods sold and ending inventory next year under the LIFO method? c-1. What cost of goods sold and ending inventory would David record if he elects to use the FIFO method this year? d. Suppose that David initially adopted the LIFO method, but wants to apply for a change to FIFO next year. What would be his §481 adjustment for this change, and in how many year(s) would he make the adjustment?

Answer 1

	Purchase	Direct	Other	Total
Widget	Date	Cost	Costs	Cost
#1	15-Aug	$2,100	100	$2,200
#2	30-Oct	2200	150	$2,350
#3	10-Nov	2300	100	$2,400
ans 1 Under LIFO method the widget purchased last is sold first hence
	Cost of Good sold	$2,400
	Ending Inventory	$4,550
	(2200+2350)
ans b
	Purchase	Direct	Other	Total
Widget	Date	Cost	Costs	Cost
#1	15-Aug	$2,100	100	$2,200
#2	30-Oct	2200	150	$2,350
#4	Early spring	2,600		$2,600
#5	Summer	2,260		$2,260
#6	Fall	2400		$2,400
	Cost of Good sold	4660
	(2400+2260)
	Ending Inventory	7150
	(2200+2350+2600)
ans c1	FIFO
For part a	Cost of Good sold	2200
First year
	Ending Inventory	4750
	(2350+2400)
for next year	Cost of Good sold	4750
	(2350+2400)
	Ending Inventory	7260
	(2400+2260+2600)
ans d		FIFO	LIFO	Difference
Year 1	Cost of Good sold	2200	2400	200
	Hence $200 will be increased in ibeginning inventory and
	the balance will be $4750. This adjustment will be spread
	for next four years