Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. Unit Transactions Units Cost $ 50 Beginning inventory, January 1 Transactions during the year: a. Purchase, January 30 b. Sale, March 14 ($100 each) c. Purchase, May 1 d. Sale, August 31 ($100 each) 1,800 2,500 (1,450) 1,200 (1,900) 62 80 Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Required: 1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: a. Last-in, first-out. b. Weighted average cost. c. First-in, first-out. d. Specific identification, assuming that the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1. 2-a. Of the four methods, which will result in the highest gross profit? 2-b. Of the four methods, which will result in the lowest income taxes?
Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. Unit Transactions Units Cost $ 50 Beginning inventory, January 1 Transactions during the year: a. Purchase, January 30 b. Sale, March 14 ($100 each) c. Purchase, May 1 d. Sale, August 31 ($100 each) 1,800 2,500 (1,450) 1,200 (1,900) 62 80 Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Required: 1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: a. Last-in, first-out. b. Weighted average cost. c. First-in, first-out. d. Specific identification, assuming that the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1. 2-a. Of the four methods, which will result in the highest gross profit? 2-b. Of the four methods, which will result in the lowest income taxes?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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How do we get 350 units?
Transcribed Image Text:Gladstone Company tracks the number of units purchased and sold throughout each accounting period but applies its inventory
costing method at the end of each period, as if it uses a periodic inventory system. Assume its accounting records provided the
following information at the end of the annual accounting period, December 31.
Unit
Transactions
Units
Cost
$ 50
Beginning inventory, January 1
Transactions during the year:
1,800
a. Purchase, January 30
b. Sale, March 14 ($100 each)
c. Purchase, May 1
d. Sale, August 31 ($100 each)
62
2,500
(1,450)
1,200
(1,900)
80
Assuming that for Specific identification method (item 1d) the March 14 sale was selected two-fifths from the beginning inventory and
three-fifths from the purchase of January 30.
Required:
1. Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31 under each of the
following inventory costing methods:
a. Last-in, first-out.
b. Weighted average cost.
c. First-in, first-out.
d. Specific identification, assuming that the March 14 sale was selected two-fifths from the beginning inventory and three-fifths from
the purchase of January 30. Assume that the sale of August 31 was selected from the remainder of the beginning inventory, with the
balance from the purchase of May 1.
2-a. Of the four methods, which will result in the highest gross profit?
2-b. Of the four methods, which will result in the lowest income taxes?
Transcribed Image Text:a. Last-In, First-Out:
Ending Inventory: (1,800 units x $50) + (350 units x $62) = $111,700
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