b.
*
c.
November purchases
FIFO method:
LIFO method:
P1. Periodic Inventory System and Inventory Costing Methods (Continued)
7-19
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3.
*Rounded
Average inventory
Inventory turnover
Cost of goods sold $9,788,100
In periods of rising prices, the LIFO method will always result in a higher inventory turnover and lower days’ inventory on hand.
When comparing inventory ratios for two or more companies, the inventory methods used by the companies should be considered.
P1. Periodic Inventory System and Inventory Costing Methods (Concluded)
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Unit
Units Price Amount
Unit
Units Price Amount
Unit
Units Price Amount
2. Periodic inventory system—FIFO method
*Rounded
Purchases
P2. Periodic Inventory System and Inventory Costing Methods
1. Periodic inventory system—average-cost method
*From purchase on April 10.
7-21
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Unit
Units Price Amount
*
Unit
Units Price Amount
*
April 1 beginning inventory
May 22 purchase
P2. Periodic Inventory System and Inventory Costing Methods (Continued)
3. Periodic inventory system—LIFO method
7-22
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Unit
Units Price Amount
Unit
Price
4.
Units
P2. Periodic Inventory System and Inventory Costing Methods (Concluded)
Purchases
Amount
The inventory costing method chosen by a company does not affect cash flows from
operations from the purchase and sale of goods because the amount actually paid
7-23
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Units Cost Amount
P3. Perpetual Inventory System and Inventory Costing Methods
1. Perpetual inventory system—average-cost method
Date
*Rounded
7-24
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Units Cost Amount
Cost of goods sold for April equals the total cost of the sale made on April 17, or $19,000.
Date
Cost of goods sold for May equals the total cost of the sale made on May 30, or $43,760.
P3. Perpetual Inventory System and Inventory Costing Methods (Continued)
2. Perpetual inventory system—FIFO method
7-25
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Units Cost Amount
3. Perpetual inventory system—LIFO method
P3. Perpetual Inventory System and Inventory Costing Methods (Continued)
Date
Cost of goods sold for May equals the total cost of the sale made on May 30, or $44,680.
Cost of goods sold for April equals the total cost of the sale made on April 17, or $19,800.
7-26
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4.
On the other hand, if the prices are rising and the company uses LIFO, the com-
pany’s cost of good sold will be higher and its ending inventory will be lower than
when using other methods. Therefore its inventory turnover would be higher.
tic prices.
If the prices are rising and the company uses FIFO, the company’s cost of goods
sold will be lower and its ending inventory will be higher than when using other
methods. Therefore its inventory turnover would be lower.
recent prices. Thus, FIFO ending inventory will reflect the most the most realistic
current prices, and LIFO ending inventory will reflect the oldest and most unrealis-
In a long period of rising prices, how realistic the inventory value of the balance
sheet is will depend on the inventory method used by the company. For instance,
P3. Perpetual Inventory System and Inventory Costing Methods (Concluded)
7-27
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.