PLEASE EXPLAIN IN DETAIL, THANKS IN ADVANCE! A. Under FIFO, the ending inventory

Question

PLEASE EXPLAIN IN DETAIL, THANKS IN ADVANCE!

A. Under FIFO, the ending inventory value is?

B. Under LIFO, the ending inventory value is?

C. How would the following transaction affect the balances of assets, liabilities, and equity?

      Assets   Liabilities   Equity

A) Increase   Increase    No change

B) Increase   No change   Increase

C) Decrease   Decrease   No change

D) Decrease   No Change Decrease

The following inventory, purchases, and sales data are for the FLM Company. FLM uses the periodic method. No. of Units Sold Inventory Purchases 1st 8 units at $5 each 15 2nd 6 units at $6 each 3rd 4 units at $10 each Beginning Inventory 4 at $4 each

Explanation / Answer

1.

Under FIFO method, opening inventory then 1st purchases and 5 units of 2nd purchases will be sold.

So closing Inventory = 3 Units of 2nd purchases + 4 Units of 3rd purchases

= (3 Unit*$6) + (4 Units*$10)

Closing inventory under FIFO = $46

2.

Under LIFO, 3rd purchases will be sold first, then 2nd purchases and then 5 Units of 1st purchases.

So closing inventory = 3 Units of 1st purchases + 4 units of Opening Inventory

= (3 Unit*$5) + (4 Units*$4)

Closing inventory under LIFO = $31

3.

Decrease in closing inventory results in Increase in COGS thus resulting in Decrease in Profit (i.e. Retain earnings in equity)

Under LIFO inventory has decreased so It will decrease the Asset (Inventory) and decrease in profit (Retain earnings in equity)

Under FIFO inventory has Increased so It will Increase the Asset (Inventory) and Increase in profit (Retain earnings in equity)

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