5) Day Company, which uses the FIFO inventory method, had 254,000 units in inventory at the beginning of the year at a FIFO cost per units of $30. No purchases were made during the year. Quarterly sales information and two sets of end of quarter replacement cost figures follow: Quarter Unit Sales Case A Case B S S 1 2 3 4 100,000 29 30,000 22 42,500 18 19 30,500 22 27 25 27 The market decline in the first quarter under Case A was expected to be temporary, whereas under Case B the decline was expected to be non temporary. Declines in other quarters were expected to be permanent. Required: Determining cost of goods sold for the four quarters under each case and verify the amounts by computing cost of goods sold using the lower of cost or market method applied on an annual basis.

5) Day Company, which uses the FIFO inventory method, had 254,000 units in inventory at the beginning of the year at a FIFO cost per units of $30. No purchases were made during the year. Quarterly sales information and two sets of end of quarter replacement cost figures follow: Quarter Unit Sales Case A Case B S S 1 2 3 4 100,000 29 30,000 22 42,500 18 19 30,500 22 27 25 27 The market decline in the first quarter under Case A was expected to be temporary, whereas under Case B the decline was expected to be non temporary. Declines in other quarters were expected to be permanent. Required: Determining cost of goods sold for the four quarters under each case and verify the amounts by computing cost of goods sold using the lower of cost or market method applied on an annual basis.

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Description: 5) Day Company, which uses the FIFO inventory method, had254,000 units in inventory at the beginning of the year at aFIFO cost per units of $30. No purchases were made duringthe year. Quarterly sales information and two sets of end ofquarter replace

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in the market with the motive of earning profit.

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Question

5) Day Company, which uses the FIFO inventory method, had
254,000 units in inventory at the beginning of the year at a
FIFO cost per units of $30. No purchases were made during
the year. Quarterly sales information and two sets of end of
quarter replacement cost figures follow:
Quarter Unit Sales Case A Case B
S $
1
2
3
4
100,000 29
25
30,000 22 27
42,500
18
19
30,500 22
27
The market decline in the first quarter under Case A was
expected to be temporary, whereas under Case B the
decline was expected to be non temporary. Declines in
other quarters were expected to be permanent.
Required:
Determining cost of goods sold for the four quarters under
each case and verify the amounts by computing cost of
goods sold using the lower of cost or market method
applied on an annual basis.

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