Chapter 6, Problem 6.7E

(a)

To determine

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.

Average Cost:

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 to calculate the weighted-average cost:

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

To Compute: The cost of ending inventory, and cost of goods sold of Company L under FIFO, LIFO, and Average Cost methods.

(b)

To determine

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.

Average Cost:

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 to calculate the weighted-average cost:

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

To identify: the cost flow method which would result in the highest net income.

(c)

To determine

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.

Average Cost:

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 to calculate the weighted-average cost:

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

the cost flow method which would result in inventories approximating current cost in the balance sheet.

(d)

To determine

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.

Average Cost:

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 to calculate the weighted-average cost:

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

the cost flow method which would result in the least payment of taxes in the first year by Company L.