Question

Income is to be evaluated under four different situations as follows:a. Prices are rising:(1) Situation A: FIFO is used.(2) Situation B: LIFO is used. b. Prices are falling: (1) Situation C: FIFO is used. (2) Situation D: LIFO is used.
The basic data common to all four situations are: sales, 510 units for $ 13,260 ; beginning inventory, 340 units; purchases, 410 units; ending inventory, 240 units; and operating expenses, $ 5,000 . The following tabulated income statements for the following situation have been set up for analytical purposes:
Required:
(a) Complete the preceding tabulation for each situation. In Situations A and B (prices rising), assume the following: beginning inventory, 340 units at \$ 9=\$ 3,060 ; purchases, 410 units at \$ 10=\$ 4,100 . In Situations \mathrm{C} and \mathrm{D} (prices falling), assume the opposite; that is, beginning inventory, 340 units at \$ 10=\$ 3,400 ; purchases, 410 units at \$ 9=\$ 3,690 . Use periodic inventory procedures.

Answer 1

IN FIFO periodic method, all the opening inventory and purchases for a period are taken and then the Cost of goods sold is calculated by taking the oldest purchased units first, therefore, the closing inventory comprises the latest purchased units. In the LIFO periodic method, all the opening inventory and purchases for a period are taken and then the Cost of goods sold is calculated by taking the latest purchased units first, therefore, the closing inventory comprises the oldest purchased units.

FIFO stands for "first in, first out" and assumes that the first item put into inventory is also the first item sold. Also known as "last in, first out," LIFO assumes that the last item added to inventory is sold first.

To calculate FIFO (first in, first out), determine the cost of the oldest inventory and multiply that cost by the amount of inventory sold while calculating the cost of inventory using LIFO (last in, first out). increase. The oldest inventory determines the current inventory and is multiplied by the amount of inventory sold.

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