PRINCIPLES OF ACCOUNTING 101-1505.
Flying Tomato sells a snowboard, WhiteOut, that is popular with snowboard enthusiasts. Presented below is information relating to Flying Tomato’s purchases of WhiteOut snowboards during September.
During the same month, 121 WhiteOut snowboards were sold at $170 each. Flying Tomato uses a periodic inventory system.
Date Explanation Units Unit Cost Total Cost
Sept. 1 Inventory 25 $ 100 $ 2,500
Sept. 12 Purchases 45 106 4,770
Sept. 19 Purchases 24 110 2,640
Sept. 26 Purchases 50 112 5,600
Totals 144 $ 15,510
Instructions:
(a) Compute the ending inventory at September 30 and cost of goods sold using the FIFO and LIFO
methods. Prove the amount allocated to cost of goods sold under each method.
(b) For both FIFO and LIFO, calculate the sum of ending inventory and cost of goods sold. What do you notice about the answers you found for each method?
(c) What is gross profit under each method?
(d) Which method results in a larger amount reported for assets on the balance sheet? Which results in a larger amount reported for owner’s equity on the balance sheet?
Part 2 is to answer, in paragraph form, the following question:
FIFO and LIFO are the two most common cost flow assumptions made in costing inventories. The amounts assigned to the same inventory items on hand may be different under each cost flow assumption. If a company has no beginning inventory, explain the difference in ending inventory values under the FIFO and LIFO cost bases when the price of inventory items purchased during the period have been (1) increasing, (2) decreasing, and (3) remained constant.