Course B10.1306.11 – Financial Accounting and Reporting Professor Joshua Ronen
Ana Sviatschi – Blue Core Group
7- 5 Calculating ending inventory and cost of goods sold under FIFO, LIFO and Average Cost
Star Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2012, the accounting records provided the following information for product 1:
Required:
Compute ending inventory and cost of goods sold under FIFO, LIFO, and average cost inventory costing methods. (Hint: Set up adjacent columns for each case.)
7- 9 Evaluating the choice among three alternative inventory methods based on Income and Cash Flow effects
Daniel Company uses a periodic inventory system. Data for 2012: beginning merchandise inventory (December 31, 2011), 2,000 units at $38; purchases, 8,000 units at $40; expenses (excluding income taxes), $194,500; ending inventory per physical count at December 31, 2012, 1,800 units; sales, 8,200 units; sales price per unit, $75; and average income tax rate, 30 percent.
1.
2. In terms of Income the method preferred is FIFO since it shows more net income than LIFO. However, in terms of income tax expense the preferred method is LIFO, since pre tax income is lower compared to FIFO
3. If prices were falling the best method will be LIFO since with this method income will be higher.
8 – 8 Computing depreciation under Alternative methods
Sterling Steel Inc. purchased a new stamping machine at the beginning of the year at a cost of $580,000. The estimated residual value was $60,000. Assume that the estimated useful life was five years, and the estimated productive life of the machine was 260,000 units. Actual annual production was as follows:
1.
2. Best method to use will be units of production since it will reflect more accurately the depreciation with the use of the equipment.
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