Chapter 5, Problem 49PA

Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements; apply lower-of-cost-or-market rule; calculate inventory turnover ratio. The following series of transactions occurred during 2009:

January 1    Beginning inventory was 70 units at $10 each

January 15    Purchased 100 units at $11 each

February 4    Sold 60 units at $20 each

March 10    Purchased 50 units at $12 each

April 15    Sold 70 units at $20 each

June 30    Purchased 100 units at $13 each

August 4    Sold 110 units at $20 each

October 1    Purchased 80 units at $14 each

December 5    Sold 50 units at $21 each

Requirements

1. 1. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the FIFO cost flow assumption.
2. 2. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the LIFO cost flow assumption.
3. 3. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic record-keeping system and the weighted average cost flow assumption.
4. 4. Which of the three methods will result in the highest cost of goods sold for the year ended December 31, 2009?
5. 5. Which of the three methods will provide the most current ending inventory value for the balance sheet at December 31, 2009?
6. 6. How will the differences between the methods affect the income statement for the year and the balance sheet at year end?
7. 7. Calculate the company’s inventory turnover ratio and average days in inventory for the year for each method in items 1, 2, and 3.
8. 8. At the end of the year, the current replacement cost of the inventory is $1,100. Indicate at what amount the company’s inventory will be reported using the lower-of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).