Chapter 6, Problem 8E

(a)

(1)

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.

Inventory cost flow: It refers to the flow (movement) of inventory when it is purchased or sell by the business organization.

The various inventory cost flow methods are:

• First-in, first-out (FIFO)
• Last in, first-out (LIFO)
• Average-cost

FIFO method: In FIFO method, those goods are sold first which are purchased first by the business organization.

LIFO method: In LIFO method, those goods are sold first which are purchased in last by the business organization

Average-cost method: In average-cost method, the value of inventory is calculated by the average of cost of goods sold which are available for the sale purpose for that period.

To determine: The cost of ending inventory and cost of goods sold under the (1) FIFO method

(2)

To determine

The cost of ending inventory and cost of goods sold under LIFO method

(3)

To determine

The cost of ending inventory and cost of goods sold under average-cost method.

(b)

To determine

The costing method which will report highest net income.

(c)

To determine

  The costing method which will report inventories close to current cost.

(d)

To determine

The costing method which will result in least taxes in first year.