Chapter 6, Problem 6.3AP

(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.

FIFO: In First-in-First-Out method, items purchased initially are sold first. So, the value of the ending inventory consists the recent cost for the remaining unsold items.

LIFO: In Last-in-First-Out method, items purchased recently are sold first. So, the value of the ending inventory consists the initial cost for the remaining unsold items.

Average cost method: In average cost method the cost of inventory is priced at the average rate of the goods available for sale.

Formula for weighted average cost method:

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

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 lowest inventory amount for the balance sheet and the lowest cost of goods sold for the income statement.