Chapter 6, Problem 6.2AP

(a)

To determine

Periodic Inventory System: It is a system in which the inventory is updated in the accounting records on a periodic basis such as at the end of each month, quarter or year. In other words, it is an accounting method which is used to determine the amount of inventory at the end of each accounting period.

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:

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

To Determine: The cost of goods available for sale.

(b)

To determine

The ending inventory and the cost of goods sold under FIFO, LIFO, and Average-cost method.

(c)

To determine

To Explain: The cost flow method which results in the highest inventory amount for the balance sheet and the highest cost of goods sold for the income statement.