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Important information about Inventory valuation

John Adams Company's record of transactions for the month of April was as follows.

Purchases
April 1 (balance on hand)600 @ $6.00
4 Â 1,500 @ 6.08
8 Â 800 @ 6.40
13 Â 1,200 @ 6.50
21 Â 700 @ 6.60
29 Â 500 @ 6.79
  5,300 Â

Sales
April 3 500 @ $10.00
9 1,400 @ 10.00
11 600 @ 11.00
23 1,200 @ 11.00
29 900 @ 12.00
 4,600 Â

Instructions

Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average cost.

Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO.

Compute cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO.

In an inflationary period, which inventory method-FIFO, LIFO, average cost-will show the highest net income?

Solution Preview

Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and (2) average cost.

The total units available for sale are 5,300 and 4,600 are sold and so the ending inventory on April 30 would be 5,300-4,600=700 units
(1) LIFO - In LIFO method we assume that the latest units are sold first and so the ending inventory would be the earliest units. The 700 units in ending inventory would be opening inventory of 600 units @$6 + 100 units of April 4 @$6.08
Ending inventory value = 600X6 + 100X6.08 = $4,208

(2) In average cost method we calculate the average cost as Total value of units available for sale/Total units available for ...

Solution Summary

The solution explains inventory calculations using FIFO, LIFO and average cost

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