7 P6A-37B Accounting for inventory using the periodic intory sLIFO FIFO, LIFO, a

Question

7 P6A-37B Accounting for inventory using the periodic intory sLIFO FIFO, LIFO, and weighted-average, and comparing FIFO, LIFO and weighted-average Right Now Electronic Center began October with 100 units of merchandise inventory that cost $70 each. During October, the store made the following purchases: Oct. 3 35 units@$82 each 12 45 units $ 84 each 18 75 units@$ 90 each Right Now uses the periodic inventory system, and the physical count at October 31 indicates that 130 units of merchandise inventory are on hand. Requirements 1. Determine the ending merchandise inventory and cost of goods sold amounts for the October financial statements using the FIFO, LIFO, and weighted-average inventory costing methods. for October using each method. method will result in the highest net income for Right Now? Why? 2. Net sales revenue for October totaled $26,000. Compute Right Now's gross profit 3. Which method will result in the lowest income taxes for Right Now? Why? Which

Explanation / Answer

1.

2.

3. LIFO method will result in lowest income taxes. Due to increasing prices, cost of goods sold is highest under LIFO resulting in lowest gross profit and hence lowest income taxes.
FIFO method will result in highest net income. Since prices are increasing, the highest priced items will remain in inventory thereby causing the cost of goods sold to be the lowest resulting in highest net income.

Working:

Beginning balance + Purchases = Cost of goods sold + Ending balance

FIFO LIFO Weighted Average Ending merchandise inventory $ 11350 9460 10400 Cost of goods sold $ 9050 10940 10000

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