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. Units 1,300 Unit Cost $40 Transactions Beginning inventory, January 1 Transactions during the year: a. Purchase, January 30 b. Sale, March 14 ($100 each) c. Purchase, May 1 d. Sale, August 31 (S100 each) 60 2,000 (950) 700 (1,500) 80 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 Required: 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.) Amount of Goods Available for Sale Ending Inventory Cost of Goods Sold a. Last-in, first-out b. Weighted average cost First-in, first-out d. Specific identification

Explanation / Answer

Cost of Goods Available for Sale Date Explanation Units Unit Cost Total 1-Jan Op. Inventory             1,300              40.00          52,000 30-Jan Purchases             2,000              60.00        120,000 1-May Purchases                 700              80.00          56,000 Total             4,000        228,000 Sales: Date Explanation Units Unit Cost Total 14-Mar Sale                 950            100.00          95,000 31-Aug Sale             1,500            100.00        150,000 Total             2,450        245,000 Ending Inventory (In Units) = 4,000 Units - 2,450 Units = 1,550 Units LIFO Method Value of Ending Inventory Date Units Unit Cost Total Cost 1-Jan                   1,300             40.00            52,000 30-Jan                      250             60.00            15,000 Total                   1,550            67,000 Weighted Average Average Cost Per Unit = $228,000 (Cost of goods available for sale) / 4,000 Units ( Units Available for Sale) Average Cost Per Unit = $57 per Unit (Approx.) Value of Ending Inventory = 1,550 Units X $57 per unit Value of Ending Inventory = $88,350 FIFO Method Value of Ending Inventory Date Units Unit Cost Total Cost 30-Jan                      850                   60            51,000 1-May                      700                   80            56,000 Total                   1,550          107,000 Specific Identification Value of Ending Inventory Date Units Unit Cost Total 30-Jan                      850             60.00            51,000 1-May                      700             80.00            56,000 Total                   1,550          107,000 Answer 1. Amt. of Goods Available for Sale Ending Inventory Cost of Goods Sold a LIFO                           228,000               67,000                161,000 b Weighted Average Cost                           228,000               88,350                139,650 c FIFO                           228,000            107,000                121,000 d Specific Identification                           228,000            107,000                121,000

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