Chapter 6, Problem 3E

To determine

Concept Introduction:

Perpetual Inventory System: The perpetual inventory system records and updates the inventory after each and every transaction. The inventory balance is updated after each transaction and it is kept up to date at every time.

Methods of inventory valuation: There are several methods of inventory valuation. Some important methods are explained as follows:

• Specific identification method: Under this method the cost of goods sold and ending inventory units are identifiable and the cost is calculated accurately for each unit sold and in the inventory.

• Weighted Average method: Under this method, the cost per unit of the inventory is calculated as weighted average cost per unit and the cost of goods sold and inventory is calculated with the help of weighted average cost per unit.

• FIFO method: FIFO Stands for First In First Out. Under this method, the units purchased first are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the latest units purchased.

• LIFO method: LIFO Stands for Last In First Out. Under this method, the latest units purchased are assumed to be sold first and cost of goods sold is calculated accordingly. The ending inventory in the method includes the oldest units purchased.

Requirement (a):

To determine: Cost of ending inventory and Cost of goods sold using the Specific identification method.

Explanation of Solution

Cost of ending inventory and Cost of goods sold using the Specific identification method is calculated as follows:

Ending Inventory:
180 units from Jan. 30 Purchase (180 units @ $4.50)	$ 810.00
5 units from Jan. 20 Purchase (5 units @ $5.00)	$ 25.00
15 units from beginning inventory (15 units @ $6.00)	$ 90.00
Cost of Ending inventory (A)	$ 925.00
Total Cost of Goods Available for Sale (B)	$ 1,950.00
Cost of Goods sold = (B-A)	$ 1,025.00

To determine

Requirement (b):

To determine: Cost of ending inventory and Cost of goods sold using the perpetual inventory weighted average method.

Explanation of Solution

Cost of ending inventory and Cost of goods sold using the perpetual inventory weighted average method is calculated as follows:

Laker Company
Perpetual Inventory Record
Using Weighted Average Method
Date	Purchases			Cost of Goods Sold			Inventory
	Units	Rate	Total Cost	Units	Rate	Total Cost	Units	Rate	Total Cost
Jan. 1							140	$ 6.00	$ 840.00
Jan. 10				100	$ 6.00	$ 600.00	40	$ 6.00	$ 240.00
Jan. 20	60	$ 5.00	$ 300.00				40	$ 6.00	$ 240.00
							60	$ 5.00	$ 300.00
							100	$ 5.40	$ 540.00
Jan. 25				80	$ 5.40	$ 432.00	20	$ 5.40	$ 108.00
Jan. 30	180	$ 4.50	$ 810.00				20	$ 5.40	$ 108.00
							180	$ 4.50	$ 810.00
Total				180		$ 1,032.00	200	$ 4.59	$ 918.00

Hence Cost of Goods Sold is $1032 and Cost of ending inventory is $918.

To determine

Requirement (c):

To determine: Cost of ending inventory and Cost of goods sold using the perpetual inventory FIFO method.

Explanation of Solution

Cost of ending inventory and Cost of goods sold using the perpetual inventory FIFO method is calculated as follows:

Laker Company
Perpetual Inventory Record
Using FIFO Method
Date	Purchases			Cost of Goods Sold			Inventory
	Units	Rate	Total Cost	Units	Rate	Total Cost	Units	Rate	Total Cost
Jan. 1							140	$ 6.00	$ 840.00
Jan. 10				100	$ 6.00	$ 600.00	40	$ 6.00	$ 240.00
Jan. 20	60	$ 5.00	$ 300.00				40	$ 6.00	$ 240.00
							60	$ 5.00	$ 300.00
Jan. 25				40	$ 6.00	$ 240.00
				40	$ 5.00	$ 200.00	20	$ 5.00	$ 100.00
Jan. 30	180	$ 4.50	$ 810.00				20	$ 5.00	$ 100.00
							180	$ 4.50	$ 810.00
Total				180		$ 1,040.00	200		$ 910.00

Hence Cost of Goods Sold is $1,040 and Cost of ending inventory is $910.

To determine

Requirement (d):

To determine: Cost of ending inventory and Cost of goods sold using the perpetual inventory LIFO method.

Explanation of Solution

Cost of ending inventory and Cost of goods sold using the perpetual inventory LIFO method is calculated as follows:

Laker Company
Perpetual Inventory Record
Using LIFO Method
Date	Purchases			Cost of Goods Sold			Inventory
	Units	Rate	Total Cost	Units	Rate	Total Cost	Units	Rate	Total Cost
Jan. 1							140	$ 6.00	$ 840.00
Jan. 10				100	$ 6.00	$ 600.00	40	$ 6.00	$ 240.00
Jan. 20	60	$ 5.00	$ 300.00				40	$ 6.00	$ 240.00
							60	$ 5.00	$ 300.00
Jan. 25				60	$ 5.00	$ 300.00
				20	$ 6.00	$ 120.00	20	$ 6.00	$ 120.00
Jan. 30	180	$ 4.50	$ 810.00				20	$ 6.00	$ 120.00
							180	$ 4.50	$ 810.00
Total				180		$ 1,020.00	200		$ 930.00

Hence, Cost of Goods Sold is $1,020 and Cost of ending inventory is $930.