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15E

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Financial & Managerial Accounting
Found in: Page 264
Financial & Managerial Accounting

Financial & Managerial Accounting

Book edition 7th
Author(s) John J Wild, Ken W. Shaw, Barbara Chiappetta
Pages 1096 pages
ISBN 9781259726705

Short Answer

Flora’s Gifts reported the following current-month data for its only product. The company uses a periodic inventory system, and its ending inventory consists of 60 units—50 units from the January 6 purchase and 10 units from the January 25 purchase. Determine the cost assigned to ending inventory and to cost of goods sold using (a) specific identification, (b) weighted average, (c) FIFO, and (d) LIFO. (Round per unit costs and inventory amounts to cents.) Which method yields the lowest net income?

Jan 1

Beginning Inventory

138 units @ $3.00

$414

Jan 6

Purchases

300 units @ $2.80

840

Jan 17

Purchases

540 units @ $2.30

1,242

Jan 25

Purchases

22 units @ $2.00

44

Total

1,000 units

$2,540

Method

Cost of goods sold

Ending Inventory

Specific Identification

$2,380

$160

Weighted Average

$2,387.60

$152.40

FIFO

$2,408.60

$131.40

LIFO

$2,360

$180

See the step by step solution

Step by Step Solution

Definition of Net Income

The net benefits generated by the business entity operating a business are known as net income. It is calculated after adjusting all of the expenses, including tax expenses.

Cost of Goods Sold and Ending Inventory

(a) Specific Identification Method

Particular

Units

X

Per unit

=

Total cost

Jan 1

138

X

3

=

$414

Jan 6

250

X

2.80

=

700

Jan 17

540

X

2.30

=

1,242

Jan 25

12

X

2.00

=

24

Total cost of goods sold

$2,380

Particular

Amount $

Total cost of goods available for sale

$2,540

Less: Cost of goods sold

(2,380)

Ending Inventory

$160

(b) Weighted Average

(c) FIFO

Particular

Units

X

Per unit

=

Total cost

Jan 1

138

X

3

=

$414

Jan 6

300

X

2.80

=

840

Jan 17

502

X

2.30

=

1,154.60

The total cost of goods sold

2,408.60

Particular

Amount $

Total cost of goods available for sale

$2,540

Less: Cost of goods sold

(2,408.60)

Ending Inventory

$131.40

(d) LIFO

Particular

Units

X

Per unit

=

Total cost

Jan 1

78

X

3

=

$234

Jan 6

300

X

2.80

=

840

Jan 17

540

X

2.30

=

1,242

Jan 25

22

X

2.00

=

44

Total cost of goods sold

$2,360

Particular

Amount $

Total cost of goods available for sale

$2,540

Less: Cost of goods sold

(2,360)

Ending Inventory

$180

The business entity will report the highest net income under the LIFO method because it reports the lowest cost of goods sold.

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