A company just starting business made the following four inventory purchases in June: June 1 10...

Question:

A company just starting business made the following four inventory purchases in June:

June 1 10 units @ $ 30 each = $ 300

June 10 20 units @ $ 40 each = $ 800

June 15 20 units @ $ 50 each = $1,000

June 28 15 units @ $ 60 each = $ 900

A physical count of merchandise inventory on June 30 reveals that there are 20 units on hand.

Required:

a. Using the LIFO method, what is the value of ending inventory on June 30 _

Cost of Goods Sold on June 30 _

b. Using the FIFO method, what is the value of ending inventory on June 30 _

Cost of Goods Sold on June 30

c. Using the Average Cost method, what is the value of ending inventory on June 30 _

Cost of Goods Sold on June 30

d. In a period of inflation, the _ method can be used to calculate the lowest net income.

e. In a period of inflation, the _ method allocates costs to ending inventory that approximate the current cost of the items in inventory.

Inventory Valuation Methods

A company can choose among 3 different inventory valuation methods: LIFO (last in, first out); FIFO (first in, first out); and Average Cost. Each of these methods will result in a different cost of goods sold and ending inventory value. A company's inventory valuation method will usually be driven by their target net income and income tax strategies. In other words, are they trying to target higher net income/higher taxes or lower net income/lower taxes?

Answer and Explanation:

a. LIFO:

Value of ending inventory on June 30: $700

Cost of goods sold on June 30: $2,300

Date Purchases Sales Cost of Goods...

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Calculate Ending Inventory: Formula & Explanation

from Financial Accounting: Help and Review

Chapter 1 / Lesson 6
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