Kirtland Corporation uses a periodic inventory system. At the end of the annual

Question

Kirtland Corporation uses a periodic inventory system. At the end of the annual accounting period, December 31, 2015, the accounting records for the most popular item in inventory showed the following: Transactions Units Unit Cost Beginning inventory, January 1, 2015 470 $6.00 Transactions during 2015: a. Purchase, January 30 370 4.10 b. Purchase, May 1 530 7.00 c. Sale ($8 each) (230) d. Sale ($8 each) (770) Required: a. Compute the amount of goods available for sale. b. & c. Compute the amount of ending inventory and cost of goods sold at December 31, 2015 under Average cost, First-in, first-out, Last-in, first-out, Specific identification of the inventory costing methods. Specific identification: assuming that the first sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30, 2015. Assume that the second sale was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1, 2015. (Do not round intermediate calculations. Round "Average Cost and Specific Identification" to 2 decimal places.)

Explanation / Answer

Periodic Inventory Units Price/unit Total Cost Weighted Average 01-01-15 opening inventory 470 6.00 2820 01-30-15 Purchase 370 4.10 1517 05-01-15 Purchase 530 7.00 3710 Closing Balance 1370 8047 5.8737 Number of units sold = 230 + 770 = 1000 Hence closing stock (units ) = 1370 -1000 = 370 units Average cost Value of inventory = closing stock * Avearge Cost                                        = 370 * 5.874    =2173.38 Cost of goods sold = Units Sold * Average Cost                                        = 1000 * 5.874                                        = 5874 First in First out ( FIFO) Value of closing inventory = 370 units from 1st May purchase * unit price Hence value of closing inventory = 370 * 7 = 2590 Value of Cost of goods sold = Value of goods available for sale - closing inventory                                                          = 8047 - 2590 = 5457 Last in First out ( LIFO) Value of closing inventory = 370 units from opening inventory * unit price = 370 * 6    = 2220 Value of Cost of goods sold = Value of goods available for sale - closing inventory                                                          = 8047 - 2220 5827 Specific identification 1st sale = 2/5th from beginning inventory = 2/5 * 1000 = 400 units 2nd sale = 3/5th from january 30 purchase = 3/5 of 1000 = 600 units After 1st sale balance of inventory is Units Price/unit Total Cost 01-01-15 opening inventory 70 6.00 420 01-30-15 Purchase 370 4.10 1517 05-01-15 Purchase 530 7.00 3710 Closing Balance 970 5647 2nd sale requires 600 units from January 30 purchase , but January 30 purchase from opening inventory and balance ( 600 - 370 -70 = 160 units) from May 1st purchase Hnece closing stock of 370 units is from May 1st purchase @ 7 per unit Hence value of closing stock = 370 * 7 = 2590 Value of Cost of goods sold = Value of goods available for sale - closing inventory                                                          = 8047 - 2590 = 5457

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