Question

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

Answer 1

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.

Answer 22)

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 ).

Answer 23)

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).

Answer 24)

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).

Answer 25)

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).