Inventory valuation methods. Computations and concepts. Wave Riders Surf Board C

Question

Inventory valuation methods. Computations and concepts. Wave Riders Surf Board Company began business on January 1 of the current year. Purchases of surf boards were as follows: Jan. 3 100 boards <& $125 Mar. 17 50 boards @ $130 May 9 246 boards @ $140 July 3 400 boards @ $150 3. Oct. 23 74 boards @ $160Wave Riders sold 710 boards at an average price of $250 per board. The company uses a periodicinventory system.Instructions:Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventoryvaluation methods: First-in, first-out

Explanation / Answer

1. Inventory.Inventory valuation methods: Basic computations.The January beginning inventory of the White Company consisted of 300 units costing $40 each. During the first quarter, the company purchased two batches of goods: 700 units at $44 on February 21 and 800 units at $50 on March 28. Sales during the first quarter were 1,400 units at $75 per unit. The White Company uses a periodic inventory system. Using the White Company data, fill in the chart that follows to compare the results obtained under the FIFO, LIFO, and weighted-average inventory methods. FIFO LIFO Weighted Average Goods available for sale $ $ $ Ending inventory, March 31 Cost of goods sold 2. Analysis of LIFO versus FIFO. Indicate whether LIFO or FIFO best describes each of the following: a. Gives highest profits when prices fall. b. Yields lowest income taxes when prices rise. c. Generates an ending inventory valuation that somewhat approximates replacement cost. d. Matches recent costs against current selling prices on the income state­ment. e. Comes closest to approximating the physical flow of goods of a fruit andvegetable dealer. f. Results in lowest cost of goods sold in inflationary periods. 3. Inventory Errors. The income statements of Diamond Company for the years ended Decem­ber 31, 19X1, and 19X2 follow. 19X1 19X2 Net sales Cost of goods sold Beginning inventory Add: Net purchases $ 95,000 380,000 $440,000 $109,000 404,000 $483,000 Goods available for sale Less: Ending inventory $475,000 109,000 $513,000 127,000 Cost of goods sold 366,000 386,000 Gross profit Operating expenses $ 74,000 58,000 $ 97,000 67,000 Net income $ 16,000 $ 30,000 Diamond uses a periodic inventory system. A detailed review of theaccounting records disclosed the following: a. A review of 19X1 purchase invoices revealed that a clerk had incor­rectly recorded a $12,600 purchase as $1,260. b. A $4,800 purchase was made on December 30, 19X2, terms F.O.B. ship­ping point. The invoice was not recorded in 19X2 nor were the goods included in the 19X2 ending physical inventory count. Both the goods and invoice were received in early 19X3, with the invoice being re­corded at that time. c. Goods costing $3,000 were accidentally excluded from the 19X1 ending physical inventory count. These goods were sold during 19X2, and all aspects of the sale were properly recorded.

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.