Chapter 6, Problem 6.3BP

(a)

To determine

Periodic Inventory System:

Periodic inventory system 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.

First-in-First-Out:

In First-in-First-Out (FIFO) method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.

Last-in-First-Out:

In Last-in-First-Out (LIFO) method, the costs of the last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.

Moving -average cost method:

Under moving average cost method, the company calculates a new average cost after every purchase is made. It is determined by dividing the cost of goods available for sale by the units on hand.

The cost of goods available for sale of Company W.

(b)(1)

To determine

The ending inventory using the assumed cash flow methods of FIFO, LIFO, and average-cost methods.

(2)

To determine

The cost of goods sold under the cash flow methods of FIFO, LIFO, and Average-cost method.

(c)(1 and 2)

To determine

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