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of Goods Sold 20-1 Purchase 1 Purchase 2 Purchase 3 Total Units 200 100 Cost/Unit 1.00 2.00 3.00 Cost 100 400 300 800 Units 100 300 400 Cost/Unit Cost DOC 900

of Goods Sold 20-1 Purchase 1 Purchase 2 Purchase 3 Total Units 200 100 Cost/Unit 1.00 2.00 3.00 Cost 100 400 300 800 Units 100 300 400 Cost/Unit Cost DOC 900

FINANCIAL ACCOUNTING
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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eBook Question Content Area Challenge Problem Bhushan Company has been using LIFO for inventory purposes because it would prefer to keep gross profits low for tax purposes. In its second year of operation (20-2), the controller pointed out that this strategy did not appear to work and suggested that FIFO cost of goods sold would have been higher than LIFO cost of goods sold for 20-2. Is this possible? 20 - 1 Units Cost/Unit Purchase 1 100 $1.00 Purchase 2 200 2.00 Purchase 3 300 3.00 Ending inventory 200 20-2 Units Cost/Unit Beginning inventory 200 Purchase 4 150 $4.00 Purchase 5 250 5.00 Purchase 6 350 6.00 Ending inventory 50 Required: Question Content Area Using the information provided, complete the various charts below and compute the cost of goods sold for 20 - 1 and 20-2 comparing the LIFO and FIFO methods. If units are in inventory at two different costs, enter the OLDEST units first.Check My Work determine units sold and the cost of goods sold under each method.
Transcribed Image Text:eBook Question Content Area Challenge Problem Bhushan Company has been using LIFO for inventory purposes because it would prefer to keep gross profits low for tax purposes. In its second year of operation (20-2), the controller pointed out that this strategy did not appear to work and suggested that FIFO cost of goods sold would have been higher than LIFO cost of goods sold for 20-2. Is this possible? 20 - 1 Units Cost/Unit Purchase 1 100 $1.00 Purchase 2 200 2.00 Purchase 3 300 3.00 Ending inventory 200 20-2 Units Cost/Unit Beginning inventory 200 Purchase 4 150 $4.00 Purchase 5 250 5.00 Purchase 6 350 6.00 Ending inventory 50 Required: Question Content Area Using the information provided, complete the various charts below and compute the cost of goods sold for 20 - 1 and 20-2 comparing the LIFO and FIFO methods. If units are in inventory at two different costs, enter the OLDEST units first.Check My Work determine units sold and the cost of goods sold under each method.
Feedback Check My Work Fill in the number of units, unit cost and total purchase cost in columns 1-3 for FIFO and columns 4-6 for LIFO. The purchases amounts are the same for both inventory costing methods and because there is no beginning inventory to consider the cost of goods available for sale is the same under both methods. Next, calculate ending inventory amounts. FIFO assumes that the most recent goods purchased are in inventory and LIFO assumes the oldest inventory remains. Since LIFO units are in inventory at two different costs, enter the OLDEST units first. Subtract ending inventory from goods available for sale to determine units sold and the cost of goods sold under each method. Details of Cost of Goods Sold 20-1 Purchase 1 Purchase 2 Purchase 3 Total Units 200 100 FIFO Cost/Unit $ 1.00 $ 100 2.00 3.00 Cost 400 300 800 Units 100 300 400 LIFO Cost/Unit $ Cost 900
Transcribed Image Text:Feedback Check My Work Fill in the number of units, unit cost and total purchase cost in columns 1-3 for FIFO and columns 4-6 for LIFO. The purchases amounts are the same for both inventory costing methods and because there is no beginning inventory to consider the cost of goods available for sale is the same under both methods. Next, calculate ending inventory amounts. FIFO assumes that the most recent goods purchased are in inventory and LIFO assumes the oldest inventory remains. Since LIFO units are in inventory at two different costs, enter the OLDEST units first. Subtract ending inventory from goods available for sale to determine units sold and the cost of goods sold under each method. Details of Cost of Goods Sold 20-1 Purchase 1 Purchase 2 Purchase 3 Total Units 200 100 FIFO Cost/Unit $ 1.00 $ 100 2.00 3.00 Cost 400 300 800 Units 100 300 400 LIFO Cost/Unit $ Cost 900
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