Question

# The following information relates to questions 22-25: A company made the following merchandise purchases and sales...

The following information relates to questions 22-25:

A company made the following merchandise purchases and sales during the month of July:

Assume that there was no beginning inventory.

July 4 Purchased 100 units at \$20 each

July 7 Sold 60 units

July 15 Purchased 200 units at \$22 each

July 22 Purchased 300 units at \$25 each

July 28 Sold 400 units

22. If the company uses the FIFO, periodic inventory method, ending inventory would be:

A. \$2,000

B. \$2,880

C. \$3,500

D. Some other amount

23. If the company uses the LIFO, period inventory method, ending inventory would be:

A. \$2,000

B. \$2,880

C. \$3,500

D. Some other amount

24. If the company uses the FIFO, perpetual inventory system, ending inventory would be:

A. \$3,500

B. \$3,000

C. \$2,000

D. Some other amount

25. If the company uses the LIFO, perpetual inventory system ending inventory would be:

A. \$3,500

B. \$3.000

C. \$2,000

D. Some other amount

Number of Units in Ending Inventory:

 Date Transaction Number of Units July'4 Purchased 100 July'7 Less: Sold 60 July'15 Purchased 200 July'22 Purchased 300 July'28 Less: Sold 400 Number of units in ending inventory 140

Thus the company had 140 units in ending inventory in the month of July.

FIFO Periodic Inventory Method: Under FIFO periodic inventory method, value of inventory is calculated at the end of a given period (say at the end of a month) on the assumption that the goods which are bought first will be first sold and so on. Thus the units of inventory which are latest bought will form part of ending inventory and moving backwards.

Calculation of Value of ending inventory under FIFO Periodic inventory Method

Since the last purchases were made on July 22 (i.e., 300 units @ \$ 25.00 per unit), the value ending inventory will be from these units:

Value of ending inventory = 140 Units X \$ 25.00 per unit

= \$ 3,500.

Thus the value of ending inventory under FIFO periodic inventory method is \$ 3,500 and the correct option is (C ).

LIFO Periodic Inventory Method: Under LIFO periodic inventory method, value of inventory is calculated at the end of a given period (say at the end of a month) on the assumption that the goods which are bought last will be first sold and moving backwards. Thus the units of inventory which are first bought will form part of ending inventory and so on.

Calculation of Value of ending inventory under LIFO Periodic inventory Method

Out of the 140 units in ending inventory 100 units will be from purchases made on July 4 at \$ 20 per unit and balance 40 units will be from 200 units purchased on July 15 at \$ 22 per unit.

Value of ending inventory = (100 Units X \$ 20.00 per unit) + (40 Units X \$ 22.00 per unit)

= \$ 2,000 + \$ 880

= \$ 2,880.

Thus the value of ending inventory under LIFO periodic inventory method is \$ 2,880 and the correct option is (B).

Calculation of Value of ending inventory under FIFO Perpetual inventory Method

 Date Purchased Cost of Goods Sold Ending Inventory Units Cost per unit (in \$) Amount (in \$) Units Cost per unit (in \$) Amount (in \$) Units Cost per unit (in \$) Amount (in \$) July'4 100 20 2000 100 20 2000 July'7 60 20 1200 40 20 800 July'15 200 22 4400 40 20 800 200 22 4400 July'22 300 25 7500 40 20 800 200 22 4400 300 25 7500 July'28 40 20 800 140 25 3500 200 22 4400 160 25 4000 Total 600 13900 460 10400 140 3500

Thus the value of ending inventory under FIFO perpetual inventory method is \$ 3,500 and the correct option is (A).

Calculation of Value of ending inventory under LIFO Perpetual inventory Method

 Date Purchased Cost of Goods Sold Ending Inventory Units Cost per unit (in \$) Amount (in \$) Units Cost per unit (in \$) Amount (in \$) Units Cost per unit (in \$) Amount (in \$) July'4 100 20 2000 100 20 2000 July'7 60 20 1200 40 20 800 July'15 200 22 4400 40 20 800 200 22 4400 July'22 300 25 7500 40 20 800 200 22 4400 300 25 7500 July'28 300 25 7500 40 20 800 100 22 2200 100 22 2200 Total 600 13900 460 10900 140 3000

Thus the value of ending inventory under LIFO perpetual inventory method is \$ 3,000 and the correct option is (B).

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