
Concept explainers
1.
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 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-Last-Out:
In Last-in-First-Out method, the costs of 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.
Weighted-average cost method:
Under Weighted 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.
value of inventory on March 31, 2016 and cost of merchandise sold using first in first out method under periodic inventory system.
1.

Explanation of Solution
The value of ending inventory on March 31, 2016 is calculated as follows:
Calculate the cost of merchandise sold is as follows:
Details | Amount ($) |
Beginning inventory, January 1, 2016 | 150,000 |
Add: Purchases (Refer Table 3) | 3,024,000 |
Merchandise available for sale | 3,174,000 |
Less: Ending inventory, March 31, 2016 | 269,500 |
Cost of merchandise sold | 2,904,500 |
Table (1)
Working notes:
Calculate the units in ending inventory as follows:
Details | Units |
Units in beginning inventory and purchased | 45,500 |
Less: Units sold | 41,750 |
Units in ending inventory | 3,750 |
Table (2)
Calculate the merchandise purchases as follows:
Purchases | |||
Date | Quantity | Unit cost | Total |
10-Jan | 7,500 | $68 | $510,000 |
10-Feb | 18,000 | $70 | $1,260,000 |
5-Mar | 15,000 | $71.60 | $1,074,000 |
25-Mar | 2,500 | $72 | $180,000 |
$3,024,000 |
Table (3)
Hence, the ending inventory on March 31, 2016 under First in First out Method is $269,500 and cost of merchandise sold is $2,904,500.
2.
value of inventory on March 31, 2016 and cost of merchandise sold using last in first out method under periodic inventory system.
2.

Explanation of Solution
The value of ending inventory is calculated as follows:
Calculate the cost of merchandise sold is as follows:
Details | Amount ($) |
Beginning inventory, January 1, 2016 | 150,000 |
Add: Purchases (Refer Table 3) | 3,024,000 |
Merchandise available for sale | 3,174,000 |
Less: Ending inventory, March 31, 2016 | 235,000 |
Cost of merchandise sold | 2,939,000 |
Table (4)
Hence, the ending inventory on March 31, 2016 under Last in First out Method is $235,000 and cost of merchandise sold is $2,939,000.
3.
value of inventory on March 31, 2016 and cost of merchandise sold using weighted average method under periodic inventory system.
3.

Explanation of Solution
The value of ending inventory is calculated by multiplying ending inventory with weighted average cost per unit.
Calculate the cost of merchandise sold is as follows:
Details | Amount ($) |
Beginning inventory, January 1, 2016 | 150,000 |
Add: Purchases (Refer Table 3) | 3,024,000 |
Merchandise available for sale | 3,174,000 |
Less: Ending inventory, March 31, 2016 | 261,600 |
Cost of merchandise sold | 2,912,400 |
Table (5)
Working note:
The weighted average unit cost is calculated as follows:
Hence, the ending inventory on March 31, 2016 under weighted average cost Method is $261,600 and cost of merchandise sold is $2,912,400.
4.
To compare: The gross profit and inventories on March 31, 2016 of all the three methods.
4.

Explanation of Solution
The table showing all the three methods of inventory is as follows:
FIFO ($) | LIFO ($) | Weighted average ($) | |
Sales | $ 5,191,250 | $ 5,191,250 | $ 5,191,250 |
Less: Cost of merchandise sold | $ 2,904,500 | $ 2,939,000 | $ 2,912,400 |
Gross Profit | $ 2,286,750 | $ 2,252,250 | $ 2,278,850 |
Ending Inventory, March 31, 2016 | $ 269,500 | $ 235,000 | $ 261,600 |
Table (6)
Working notes:
Calculate the total sales for the three-month period:
Sales | |||
Date | Quantity | Unit cost | Total |
28-Jan | 3,750 | $120 | $450,000 |
30-Jan | 1,250 | $120 | $150,000 |
5-Feb | 500 | $120 | $60,000 |
16-Feb | 9,000 | $125 | $1,125,000 |
28-Feb | 8,500 | $125 | $1,062,500 |
14-Mar | 10,000 | $125 | $1,250,000 |
30-Mar | 8,750 | $125 | $1,093,750 |
Total | $5,191,250 |
Table (7)
Want to see more full solutions like this?
Chapter 7 Solutions
Bundle: Accounting, Loose-Leaf Version, 26th + LMS Integrated for CengageNOW, 2 terms Printed Access Card
- Solve fastlyarrow_forwardWhat is the return on common stockholders equity for these financial accounting question?arrow_forwardEvergreen Corporation (calendar-year-end) acquired the following assets during the current year: (Use MACRS Table 1 and Table 2.) Date Placed in Asset Machinery Service October 25 Original Basis $ 120,000 Computer equipment February 3 47,500 Used delivery truck* August 17 Furniture April 22 60,500 212,500 The delivery truck is not a luxury automobile. Note: Do not round intermediate calculations. Round your answers to the nearest whole dollar amount. a. What is the allowable depreciation on Evergreen's property in the current year, assuming Evergreen does not elect §179 expense and elects out of bonus depreciation? Depreciation $ 69,096arrow_forward
- Nicole organized a new corporation. The corporation began business on April 1 of year 1. She made the following expenditures associated with getting the corporation started: Expense Date Amount Attorney fees for articles of incorporation February 10 $ 40,500 March 1-March 30 wages March 30 6,550 March 1-March 30 rent Stock issuance costs March 30 2,850 April 1-May 30 wages Note: Leave no answer blank. Enter zero if applicable. April 1 May 30 24,000 16,375 a. What is the total amount of the start-up costs and organizational expenditures for Nicole's corporation? Start-up costs Organizational expendituresarrow_forwardWhat is the return on investment of this financial accounting question?arrow_forwardLast Chance Mine (LCM) purchased a coal deposit for $2,918,300. It estimated it would extract 18,950 tons of coal from the deposit. LCM mined the coal and sold it, reporting gross receipts of $1.24 million, $13 million, and $11 million for years 1 through 3, respectively. During years 1-3, LCM reported net income (loss) from the coal deposit activity in the amount of ($11,400), $550,000, and $502,500, respectively. In years 1-3, LCM extracted 19,950 tons of coal as follows: (1) Tons of Coal 18,950 Depletion (2) Basis (2)(1) Rate $2,918,300 $154.00 Tons Extracted per Year Year 1 4,500 Year 2 8,850 Year 3 6,600 Note: Leave no answer blank. Enter zero if applicable. Enter your answers in dollars and not in millions of dollars. b. What is LCM's percentage depletion for each year (the applicable percentage for coal is 10 percent)? Percentage Depletion Year 1 Year 2 Year 3 $ 0arrow_forward
- Can you please solve this accounting issue without use Ai?arrow_forwardBrown Company estimates that monthly sales will be as follows. January $100,000 February 150,000 March 180,000 Historical trends indicate that 40 percent of sales are collected during the month of sale, 50 percent are collected in the month following the sale, and 10 percent are collected two months after the sale. Brown's accounts receivable balance as of December 31 totals $80,000 ($72,000 from December's sales and $8,000 from November's sales). The amount of cash Brown can expect to collect during the month of January is?arrow_forwardgiven answer General accounting questionarrow_forward
- Financial AccountingAccountingISBN:9781305088436Author:Carl Warren, Jim Reeve, Jonathan DuchacPublisher:Cengage LearningFinancial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningIntermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
- Financial And Managerial AccountingAccountingISBN:9781337902663Author:WARREN, Carl S.Publisher:Cengage Learning,Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeSurvey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning




