
Concept explainers
a.
Ascertain the cost of goods sold and the ending inventory cost at December 31, 2012 under (a) first-in first-out, (b) last-in first-out, and (c) weighted average cost method.
a.

Explanation of Solution
Periodic inventory system: The method or system of recording the transactions related to inventory occasionally or periodically are referred to as periodic inventory system.
First-in-First-Out (FIFO): In this method, items purchased initially are sold first. So, the value of the ending inventory consist the recent cost for the remaining unsold items.
Last-in-First-Out (LIFO): In this method, items purchased recently are sold first. So, the value of the ending inventory consist the initial cost for the remaining unsold items.
Weighted-average Cost Method: In this method, the inventories are priced at the average rate of goods available for sales.
Ascertain the cost of goods sold and the ending inventory cost at December 31, 2012 under (a) first-in first-out, (b) last-in first-out, and (c) weighted average cost method as follows:
a. First-in-First-Out (FIFO):
Cost of ending inventory:
Calculation of Cost of Ending Inventory | |||
Details | Number of Units | Rate per Unit ($) | Total Cost ($) |
January 23 | 40 | 4 | 160 |
Ending Inventory | 40 | - | 160 |
Table (1)
Therefore, the ending inventory of Company K under first-in first out method is $160.
Cost of goods sold:
Here,
Goods available for sale is $4,150 (Refer Table 2)
Ending inventory is 160 (Refer Table 1)
Therefore, the cost of goods sold of Company K under first-in first out method is $3,990.
Working note:
Calculate the total cost and goods available for sales
Calculation of Goods Available for Sales | |||
Details | Number of Units | Rate per unit ($) | Total Cost ($) |
Beginning balance, January 1 | 0 | 0 | 0 |
Add: Purchases | |||
January 10 | 400 | 3 | 1,200 |
January 17 | 500 | 3.5 | 1,750 |
January 23 | 300 | 4 | 1,200 |
Total Goods available for Sale | 1,200 | 4,150 | |
Less: Sales: | |||
January 15 | 360 | ||
January 21 | 420 | ||
January 27 | 380 | ||
Ending Inventory | 40 |
Table (2)
b. Last-in-First-Out (LIFO):
Cost of ending inventory:
Calculation of Cost of Ending Inventory | |||
Details | Number of Units | Rate per Unit ($) | Total Cost ($) |
January 10 | 40 | 3 | 120 |
Ending Inventory | 40 | - | 120 |
Table (3)
Therefore, the ending inventory of Company K under last-in first out method is $120.
Cost of goods sold:
Goods available for sale is $4,150 (Refer Table 2)
Ending inventory is $120 (Refer Table – 3)
Therefore, the cost of goods sold of Company K under last-in first out r method is $4,030.
c. Weighted average Cost Method:
Cost of ending inventory:
Here,
Weighted- average cost per unit is $3.458 (1)
Number of units in ending inventory is 40 units
Therefore, the ending inventory of Company K under weighted average cost method is $138.
Cost of goods sold:
Goods available for sale is $4,150 (Refer Table 2 )
Ending inventory is $138
Therefore, the cost of goods sold of Company K under last-in first out method is $4,012.
Working note:
Calculate the weighted
Total cost of goods available for sale is $4,150 (Refer Table 2)
Total units of goods available for sale is 1,200 units (Refer Table 2)
b.
Ascertain the cost of ending inventory on the January 31 under the three inventory costing method, if Company K uses replacement cost.
b.

Explanation of Solution
Lower-of-cost-or-market value:
The lower-of-cost-or-market value is a method which requires the reporting of the ending merchandise inventory in the financial statement of a company, at its current market value (net realizable value) or at its historical cost price, whichever is less.
Ascertain the cost of ending inventory on the January 31 under the three inventory costing method, if Company K uses replacement cost as follows:
Value of ending inventory on the January 31 (When the Replacement Cost of Ending inventory is $4) | |||
Method |
Total cost of ending inventory at Acquisition Cost ($) (a) |
Total cost of ending inventory at Replacement Cost ($) (b) |
Ending inventory reported on January 31 balance sheet (Lesser of (a) and (b) |
FIFO | $160 (Refer table 1) | $160 (2) | $160 |
LIFO | $120 (Refer table 3) | $160 (2) | $120 |
WA | $138 | $160 (2) | $138 |
Table (4)
Therefore, if the replacement cost of the inventory at year-end is $160, then the ending inventory under FIFO, LIFO and weighted average cost method are $160, $120, and $138 respectively.
Working note:
Calculate the value of ending inventory under replacement cost
Here,
Ending inventory units is 40 units
Replacement cost is $4 per unit
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