Question

Tyson Corporation bought raw materials on April 23, 2012 and also on July 2, 2012. Products produced in the months of May were sold in July. The firm uses FIFO to value its inventory. According to the matching principle, the firm's accountant should associate:_____________. 1. the inventory acquired on July 2 with the products sold. 2. the inventory acquired on April 23 with the products sold. 3. Neither of these dates is valid because the products were sold in July. 4. None of the above.

Answer 1

Answer:

2. the inventory acquired on April 23 with the products sold

Explanation:

Tyson Corporation

As the company uses FIFO it would associate the sales with the inventory bought earliest. FIFO means first in first out the materials bought first would be sold first . The materials bought later would be sold later. In this situation the April 23 inventory is the first purchase so it would be associated with the products sold first in July.

So option 2 is the best option indicating the first purchase sold first.

Answer 2

Answer:

2) the inventory acquired on April 23 with the products sold.

Explanation:

The first in, first out inventory valuation method associates cost of goods sold with the oldest items held in the inventory, either materials or finished products. This doesn't mean that the company actually used the oldest materials, it just means that for accounting purposes it will consider the price of the oldest materials as part of the cost of goods sold.

US GAAP accepts three inventory valuation methods, FIFO (first in, first out), LIFO (last in, first out) and weighted average. On the other hand, international accounting standards (IFRS) only accept FIFO for inventory valuation purposes.