Esquire Inc. uses the LIFO method to value its inventory. Inventory at January 1

Question

Esquire Inc. uses the LIFO method to value its inventory. Inventory at January 1, 2013, was $500,000 (25,000 units at $20 each). During 2013, 90,000 units were purchased, all at the same price of $27 per unit. 95,000 units were sold during 2013. Esquire uses a periodic inventory system.

Esquire Inc. uses the LIFO method to value its inventory. Inventory at January 1, 2013, was $500,000 (25,000 units at $20 each). During 2013, 90,000 units were purchased, all at the same price of $27 per unit. 95,000 units were sold during 2013. Esquire uses a periodic inventory system.

Explanation / Answer

Hi,

Please find the answer as follows :

Ending Inventory = Opening Inventory + Purchases - Sales = 25000 + 90000 - 95000 = 20000 units

Ending Inventory would comprise of Opening Inventory only since LIFO method is used, therefore the value of Ending Inventory would be = 20000*20 = $400000

Cost of Goods Sold = 90000*27 (complete purchases sold) + 5000*20 (portion of opening inventory sold) = $2530000

Thanks.

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