2. FIFO LIFO
Method Method
E5A. Effects of Inventory Costing Methods on Cash Flows (Concluded)
The results under the FIFO method are the same with or without the purchase, but
Sales
cause the ending inventory is below the beginning inventory level. Many companies
under LIFO income taxes are $18,000 less ($51,000 – $33,000), and net income is
$42,000 less ($119,000 – $77,000).
The reason for this outcome under LIFO is that a LIFO liquidation is avoided by buy-
ing the 10,000 cases at the end of the year. In this way all 20,000 cases of the LIFO
7-10
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Units Cost Amount
*
Units Cost Amount
1. Average-cost method
Rounded
E6A. Perpetual Inventory System and Inventory Costing Methods
Date
FIFO method
Date
7-11
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Units Cost Amount
2.
Date
E6A. Perpetual Inventory System and Inventory Costing Methods (Concluded)
LIFO method
The difference in gross margin under FIFO and LIFO of $300 ($33,300 – $33,000) re-
sults from the difference in ending inventory under the two methods. Since prices
7-12
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Cost Total
1.
a.
×=
×=
b.
**
2,160
720
Average-cost method:
Rounded
120 $ 6
180 $12
units
Specific identification method:
Purchase 2
Purchase 4
Units
units
Periodic inventory system
E7A. Periodic and Perpetual Systems and Inventory Costing Methods
Cost of goods available for sale and ending inventory in units
7-13
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c.
×=
d.
2.
a.
Cost Amount
*Rounded
Units
Perpetual inventory system
Average-cost method:
Purchase 3
units
Total ending inventory
E7A. Periodic and Perpetual Systems and Inventory Costing Methods (Continued)
FIFO method:
LIFO method:
$1,320
Total ending inventory
$9200
$3,960
1,800
7-14
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b.
c.
LIFO method:
E7A. Periodic and Perpetual Systems and Inventory Costing Methods (Concluded)
FIFO method:
7-15
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1. Cost Retail
E8A. Retail Method
7-16
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3. 7.
4.
E11A. Inventory Ratios
E10A. Management Issues
a
Cost of Goods Sold
Average Inventory
Inventory Turnover =
Resource CD and website.
Note to Instructor: Solutions for Exercises: Set B are provided separately on the Instructor’s
c
d
7-17
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1. Total
Price Cost
Units
Problems
P1. Periodic Inventory System and Inventory Costing Methods
7-18
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