Effect of Inventory Cost Flow Assumption on Financial Statements

Accounting for Inventories

Exercise 5-1A: Effect of Inventory Cost Flow Assumption on Financial Statements

Required

For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies:

a. In a period of falling prices, net income would be highest.
b. In a period of falling prices, the unit cost of goods would be the same for ending inventory and cost of goods sold.
c. In a period of rising prices, net income would be highest.
d. In a period of rising prices, cost of goods sold would be highest.
e. In a period of rising prices, ending inventory would be highest.

Exercise 5-2A: Allocating Product Cost Between Cost of Goods Sold and Ending Inventory

Jones Co. started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first purchase cost $1,060 and the other, $1,380. Jones sold one of the items during the year.

Required
Based on this information, how much product cost would be allocated to cost of goods sold and ending inventory on the year-end financial statements, assuming use of:

a. FIFO?
b. LIFO?
c. Weighted average?

Exercise 5-3A: Allocating Product Cost Between Cost of Goods Sold and Ending Inventory: Multiple Purchases

Cortez Company sells chairs that are used at computer stations. Its beginning inventory of chairs was 100 units at $60 per unit. During the year, Cortez made two batch purchases of this chair. The first was a 150-unit purchase at $68 per unit; the second was a 200-unit purchase at $72 per unit. During the period, it sold 270 chairs.

Required
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Cortez uses:

a. FIFO.
b. LIFO.
c. Weighted average.