PA7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic

Question

PA7-1 Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO 7-3]

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round intermediate calculations to 2 decimal places and final answers to the nearest whole dollar amount.)

         

Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31.

Explanation / Answer

2-a

Gross profit is highest in FIFO.

2-b

Gross profit is lowest in LIFO, it results in lowest income taxes.

LIFO Method Periodic Inventory method Cost of goods available for sale Date Explanation Units Per unit Total Jan.1 Beginning inventory         1,600                 45      72,000 jan.30 Purchase         2,300                 49 1,12,700 May.1 Purchase         1,000                 75      75,000 Total         4,900 2,59,700 Ending inventory Date Units Per unit Total Jan.1                               1,600              45         72,000 jan.30                                   550              49         26,950 Total                               2,150         98,950 Cost of goods available for sale      2,59,700 Less: Ending inventory         98,950 Cost of goods sold      1,60,750

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