Chapter 8, Problem 8.7P

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.

Specific identification method (SI): Specific identification method can be said as identifying the items precisely which are being sold and those which are being stored as closing inventory. The companies are required to keep perfect records of the original cost of each and every individual items of the inventory.

First-in-First-Out (FIFO): In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.

Last-In, First-Out (LIFO): In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.

Weighted-average cost method (WA): In Weighted-average Method the cost of inventory is priced at the average rate of the goods available for sale.

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}$

To Calculate: The ending inventory and cost of goods sold using the specific identification method.

Explanation of Solution

Compute the goods available for sales.

Calculation of Goods Available for Sales
Details	Car ID	Cost ($)
Beginning balance	203	60,000
	207	60,000
	210	63,000
Total Beginning Balance		183,000
Purchases	211	63,000
	212	63,000
	213	64,500
	214	66,000
	215	69,000
	216	70,500
	217	72,000
	218	72,300
	219	75,000
Goods Available For Sale		798,300

Table (1)

Calculate the ending inventory using specific identification method.

Calculation of Ending Inventory
Details	Car ID	Cost ($)
Car Not Sold	213	64,500
Car Not Sold	216	70,500
Car Not Sold	219	75,000
Ending Inventory		210,000

Table (2)

Therefore, the cost of ending inventory using specific identification methodis$210,000.

Calculate the cost of goods soldusing specific identification method.

Cost of Goods Sold
Details	Cost ($)
Goods Available For Sales	798,300
Less: Ending Inventory	(210,000)
Cost of Goods Sold	588,300

Table (3)

Therefore, the cost of goods sold using specific identification method is$588,300.

2.

To determine

To Calculate: The ending inventory and cost of goods sold using FIFO method.

Explanation of Solution

Calculate the cost of ending inventory.

Calculation of Ending Inventory
Details	Cost ($)
Car ID
219	75,000
218	72,300
217	72,000
Ending Inventory	219,300

Table (4)

Therefore, the cost of ending inventory using FIFO is $219,300.

Calculate the cost of goods sold.

Cost of Goods Sold
Details	Cost ($)
Goods Available for Sales	798,300
Less: Ending Inventory	(219,300)
Cost of Goods Sold	579,000

Table (5)

Therefore, the cost of goods sold using FIFO method is$579,000.

3.

To determine

To Calculate: The ending inventory and cost of goods sold using LIFO method.

Explanation of Solution

Calculate the ending inventory.

Calculation of Ending Inventory
Details	Cost ($)
Car ID
203	60,000
207	60,000
210	63,000
Ending Inventory	183,000

Table (6)

Therefore, the cost of ending inventory using LIFO method is$183,000.

Calculate the cost of goods sold.

Cost of Goods Sold
Details	Cost ($)
Goods Available for Sales	798,300
Less: Ending Inventory	(183,000)
Cost of Goods Sold	615,300

Table (7)

Therefore, the cost of goods sold using LIFO method is$615,300.

4.

To determine

To Calculate: The ending inventory and cost of goods sold using weighted-average method.

Explanation of Solution

Calculate the amount of ending inventory.

$\begin{array}{c}\text{Cost of Ending inventory}=\left(\begin{array}{l}\left(\begin{array}{l}\text{Number of units in}\\ \text{Ending inventory}\end{array}\right)\\ \times \text{Weighted-average cost per unit}\end{array}\right)\\ =3\text{ units}\times \text{\$66,525}\text{(1)}\\ =\text{\$199,575}\end{array}$

Working Note:

Calculate the weighted-average cost.

$\begin{array}{c}\begin{array}{l}\text{Weighted-average}\\ \text{Cost}\end{array}\}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total number of units Available for Sale}}\\ =\frac{\$798,300}{\text{12 Units}}\\ =\$66,525\end{array}$ (1)

Therefore, the cost of ending inventory usingweighted-average-cost method is$199,575.

Calculate the cost of goods sold.

Cost of Goods Sold
Details	Cost ($)
Goods Available for Sales	798,300
Less: Ending Inventory	(199,575)
Cost of Goods Sold	598,725

Table (8)

Therefore, the cost of goods sold usingweighted-average-cost method is$598,725.