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Chapter 6: 19E_3 (page 363)

Question:Assume that Toys Galore store bought and sold a line of dolls during December as follows:

Dec. 1 Beginning merchandise inventory 13 units @ \( 9 each

8 Sale 8 units @ \) 22 each

14 Purchase 16 units @ \( 14 each

21 Sale 14 units @ \) 22 each

Requirements

3. Which method results in a higher cost of goods sold?

Short Answer

Expert verified

The LIFO method would provide a higher cost of goods sold

Step by step solution

01

Step-by-Step-SolutionStep1: Cost of goods sold under FIFO and LIFO

Under FIFO cost of goods sold is valued at historical prices. Whereas, the cost of goods sold is valued at the current prices under the LIFO method.

So it depends upon the fluctuation of the market price to report the highest and lowest COGS under the two methods.

In case of rising prices, LIFO would provide a higher COGS. Whereas, in case of falling prices the FIFO would provide a higher COGS.

02

COGS in the given case

In the given case, it can be seen that the cost price has been increased during the month.

So, in case of rising prices, LIFO would provide the highest COGS.

The COGS under the FIFO method was $347 and under the LIFO method was$372.

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Most popular questions from this chapter

Question:Broadway Communications reported the following figures in its annual financial statements:

Cost of Goods Sold $ 18,400

Beginning Merchandise Inventory 560

Ending Merchandise Inventory 450

Compute the rate of inventory turnover and days’ sales in inventory for BroadwayCommunications. (Round to two decimal places.)

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

4. Which accounting principle or concept is most relevant to this situation?

Question:Golf Unlimited carries an inventory of putters and other golf clubs. The sales price of each putter is \(119. Company records indicate the following for a particular line ofGolf Unlimited’s putters:

Date Item Quantity Unit Cost

Nov. 1 Balance 24 \) 53

6 Sale 20

8 Purchase 30 70

17 Sale 30

30 Sale 2

Requirements

1. Prepare Golf Unlimited’s perpetual inventory record for the putters assumingGolf Unlimited uses the LIFO inventory costing method. Then identify the costof ending inventory and cost of goods sold for the month.

Assume that AB Tire Store completed the following perpetual inventory transactions for a line of tires:

May 1 Beginning merchandise inventory 16 tires @ \( 65 each

11 Purchase 10 tires @ \) 78 each

23 Sale 12 tires @ \( 88 each

26 Purchase 14 tires @ \) 80 each

29 Sale 18 tires @ $ 88 each

Requirements

4. Which method results in the largest gross profit, and why?

Some of L and K Electronics’s merchandise is gathering dust. It is now December 31, 2018, and the current replacement cost of the ending merchandise inventory is\(32,000 below the business’s cost of the goods, which was \)98,000. Before any adjustmentsat the end of the period, the company’s Cost of Goods Sold account has a balanceof $410,000.

Requirements

3. At what amount should the company report cost of goods sold on the incomestatement?
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