Chapter 6, Problem 6.4E

(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.

To Calculate: The cost of goods sold using the FIFO periodic inventory method of P Electronics.

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

(b)

To determine

Specific identification method: Specific identification method meant for accurately identifying the items that are being sold and stored as ending inventory using the purchase price. It requires the companies to keep perfect records of the original cost of each and every individual items of the inventory.

To show: The treatment of recording cost of goods sold, to minimize earnings and to maximize earnings using specific identification method.

(c)

To determine

Specific identification method: Specific identification method meant for accurately identifying the items that are being sold and stored as ending inventory using the purchase price. It requires the companies to keep perfect records of the original cost of each and every individual items of the inventory.

To choose: Whether the FIFO method or specific identification method would be recommended for M Electronics Limited.