Chapter 6, Problem 6.28AP

1.

To determine

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.

In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.

In Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total Number of Units Available For Sale}}$

The cost of goods sold, ending merchandise inventory and gross profit under FIFO method using perpetual inventory system.

2.

To determine

The cost of goods sold, ending merchandise inventory and gross profit under LIFO method using perpetual inventory system.

3.

To determine

The cost of goods sold, ending merchandise inventory and gross profit under weighted average method using perpetual inventory system.

4.

To determine

To Explain: The method that the company should use to pay least amount of income taxes.