Calculate cost of goods sold and ending inventory; analyze effects of each method on financial statements apply lower-of-cost-or-market rule calculate inventory turnover ratio. (LO 3,4, 5,6)
Hillary’s Diamonique buys and then resells a single product. Here is some information concerning Hillary’s inventory activity during the month of August 2008.
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August 2 |
860 units on hand at a total value of $10.320 |
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August 6 |
Sold 400 units at $14 per unit |
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August 8 |
Purchase 640 units at $11 per unit |
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August 12 |
Purchase 425 units at $10 per unit |
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August1 5 |
Sold 600 units at $12 per unit |
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Augus2t 1 |
Purchase 300 units at $9 per unit |
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August 24 |
Sold 800 units at $16 per unit |
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Augus3t 1 |
Purchased 100 units at $8 per unit |
Hillary’s uses a periodic inventory system.
Required
a. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the FIFO cost flow assumption.
b. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the LIFO cost flow assumption.
c. Calculate the value of the ending inventory and cost of goods sold, assuming the company uses a periodic inventory system and the weighted average cost flow assumption.
d. Which of the three methods will result in the highest cost of goods sold for August?
e. Which of the three methods will provide the most current ending inventory value for Hillary’s balance sheet at August 31,2008?
f. How would the differences between the methods affect Hillary’s income statement to August and balance sheet at August 31, 2008?
g. At the end of the year, the current replacement cost of the inventory is $6,730.
Indicate at what amount the company’s inventory will be reported using the lower of-cost-or-market rule for each method (FIFO, LIFO, and weighted average cost).
h. Calculate the company’s inventory turnover ratio and days in inventory for the month for each method in items a. b. and c.