You are provided with the following information for Gobler Inc. uses the periodic method of accounting for its inventory transactions
| March 1 | Beginning inventory 2,000 liters at a cost of 60¢ per liter. |
| March 3 | Purchased 2,500 liters at a cost of 65¢ per liter. |
| March 5 | Sold 2,300 liters for $1.05 per liter. |
| March 10 | Purchased 4,000 liters at a cost of 72¢ per liter. |
| March 20 | Purchased 2,500 liters at a cost of 80¢ per liter. |
| March 30 | Sold 5,200 liters for $1.25 per liter. |
Instructions
- Prepare partial income statements through gross profit, and calculate the value of ending inventory that would be reported on the balance sheet, under each of the following cost flow assumptions. (Round ending inventory and cost of goods sold to the nearest dollar.)
- Specific identification method assuming:
- The March 5 sale consisted of 1,000 liters from the March 1 beginning inventory and 1,300 liters from the March 3 purchased; and
- The March 30 sale consisted of the following number of units sold from beginning inventory and each purchase: 450 liters from March 1; 550 liters from March3; 2,900 liters from March 10; 1,300 liters from March 20.
- FIFO
- LIFO
- Specific identification method assuming:
- How can companies use a cost flow method to justify price increases? Which cost flow method would best support an argument to increase prices?
Solution
a.
1.
Gobler Inc.
Income Statement (partial)
Specific Identification Method
For the Month Ended March 31
Income Statement (partial)
Specific Identification Method
For the Month Ended March 31
2.
Gobler Inc.
Income Statement (partial)
FIFO Method
For the Month Ended March 31
Income Statement (partial)
FIFO Method
For the Month Ended March 31
3.
Gobler Inc.
Income Statement (partial)
LIFO Method
For the Month Ended March 31
Income Statement (partial)
LIFO Method
For the Month Ended March 31
b.
In Comprising are trying to present a cost flow method for appropriate income statement under just-in-time. LIFO method would best support an argument to increase prices.