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Ending inventory,COGS and Net income under the FIFO method

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Purchases: July 15
5500 units
$9.00 per unit
November 12 Spark Company's inventory records show the following data
Inventory, January 1, 2013
6,000 units
$10.00
3500 units
$8.00 per unit

A physical inventory on December 31 2013 shows 4,000 units on hand. Spark sells the units for $18 each. The company has an effective tax rate of 20%. Spark uses the periodic inventory method.
Under the FIFO method, calculate ending inventory at Dec 31st 2013, cost of goods sold and present statement of income for the period ended 31st December 2013 in the proper form.

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Periodic system-FIFO
Cost of Goods available for sale
Date Explanation Units Unit cost Total cost
01-Jan Beginning inventory 6000 10 $60,000
15-Jul Purchase 5500 9 $49,500
12-Nov Purchase 3500 8 $28,000
Total 15000 $137,500

Ending inventory ...

Solution Summary

The solution contains step by step calculations of Ending inventory under periodic system using the FIFO method. It also covers calculations of cost of goods sold on the basis of cost of goods available for sale and ending inventory. Further statement showing per-tax and after-tax net income is provided.

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See Also This Related BrainMass Solution

Financial Accounting : FIFO and LIFO Applied

Please see the attached file for the fully formatted problems.

P6-4A The management of Aurora Co. is reevaluating the appropriateness of using its present inventory cost flow
method, which is average cost. They request your help in determining the results of operations for 2002 if either the FIFO
method or the LIFO method had been used. For 2002, the accounting records show the following data.

Inventories Purchases and Sales
Beginning (15,000 units) 34,000 Total net sales (225,000 units) $865,000
Ending (20,000 units) Total cost of goods purchased
(230,000 units) $591,500

Purchases were made quarterly as follows.

Quarter Units Unit Cost Total Cost
1 60,000 $2.40 $144,000
2 50,000 2.5 125,000
3 50,000 2.6 130,000
4 70,000 2.75 192,500
230,000 $591,500

Operating expenses were $147,000 and the company's income tax rate is 32%

Instructions
(a) Prepare comparative condensed income statements for 2002 under FIFO and LIFO. (Show computations of ending
inventory.)

(b) Answer the following questions for management.

(1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why?
(2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why?
(3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual physical flow of the goods? Why?
(4) How much additional cash will be available for management under LIFO than under FIFO? Why?
(5) Will gross profit under the average cost method be higher or lower than (a) FIFO and (b) LIFO?
(Note: It is not necessary to quantify your answer.)

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