Question

Kirtland Corporation uses a periodic inventory system. At the end of the annual accounting period, December 31, the accounting records for the most popular item in inventory showed the following: Transactions Units Unit Cost Beginning inventory, January 1 370 $4.00 Transactions during the year: a. Purchase, January 30 270 3.10 b. Purchase, May 1 430 5.00 c. Sale ($6 each) (130) d. Sale ($6 each) (670) Required: a. Compute the amount of goods available for sale. b. & c. Compute the amount of ending inventory and cost of goods sold at December 31, under Average cost, First-in, first-out, Last-in, first-out and Specific identification inventory costing methods. For Specific identification, assume that the first sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30. Assume that the second sale was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1.

Answer 1

Answer:

a. Using average cost method,

i. Goods available for sale will be  at December 31 is 1070 units

ii. Ending inventory at December 31 is 270 units

iii. Cost of goods sold at December 31 is  $3,320

b. Using FIFO method,

i. Goods available for sale will be  at December 31 is 1070 units

ii. Ending inventory at December 31 is 270 units

iii. Cost of goods sold at December 31 is  $ 3,090

c. Using LIFO method,

i. Goods available for sale will be  at December 31 is 1070 units

ii. Ending inventory at December 31 is 270 units

iii. Cost of goods sold at December 31 is  $  3,360

d. Using Specific Identification method,

i. Goods available for sale will be  at December 31 is 1070 units

ii. Ending inventory at December 31 is 270 units

iii. Cost of goods sold at December 31 is  $ 3,474  

Explanation:

a. The average cost method is used by finding out the average cost of all available inventory just before a 1st sales (total purchase cost /total quantity available before sales).In this case it is ($4,440/1,070)= $4.14953271. 1st and 2d sales is then carried out based on this price. The price changes as new purchases are made. if this is done using excel the result will be as file attached;

b. Under the FIFO method, goods that are purchased into store first must be completely sold before recently stock goods are disposed. See attached file. See attached file.

c. Under the LIFO method, goods that are most recently purchased are sold out first.

d. In applying specific  identification, the instruction on where to sale for is strictly followed. See attached file.

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