Exercise 5-1B: Effect of Inventory Cost Flow Assumption on Financial Statements
Required
For each of the following situations, fill in the blank with FIFO, LIFO, or weighted average:
a. ____ would produce the highest amount of net income in an inflationary environment.
b. ____ would produce the highest amount of assets in an inflationary environment.
c. ____ would produce the lowest amount of net income in a deflationary environment.
d. ____ would produce the same unit cost for assets and cost of goods sold in an inflationary environment.
e. ____ would produce the lowest amount of net income in an inflationary environment.
f. ____ would produce an asset value that was the same regardless of whether the environment was inflationary or deflationary.
g. ____ would produce the lowest amount of assets in an inflationary environment.
h. ____ would produce the highest amount of assets in a deflationary environment.
Exercise 5-2B: Allocating Product Cost Between Cost of Goods Sold and Ending Inventory
Harris Co. started the year with no inventory. During the year, it purchased two identical inventory items at different times. The first purchase cost $3,600, and the other cost $4,200. One of the items was sold 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 5-3B: Allocating Product Cost Between Cost of Goods Sold and Ending Inventory: Multiple Purchases
Marley Company sells coffee makers used in business offices. Its beginning inventory of coffee makers was 400 units at $50 per unit. During the year, Marley made two batch purchases of coffee makers. The first was a 500-unit purchase at $55 per unit; the second was a 600-unit purchase at $58 per unit. During the period, Marley sold 1,200 coffee makers.
Required
Determine the amount of product costs that would be allocated to cost of goods sold and ending inventory, assuming that Marley uses:
a. FIFO.
b. LIFO.
c. Weighted average.
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