Inventory valuation methods. Computations and concepts.
Wave Riders Surf Board Company began business on January 1 of the current year.
Purchases of surf boards were as follows:
|
Jan. 3 |
100 boards @ $125 |
|
Mar. 17 |
50 boards @ $130 |
|
May 9 |
246 boards @ $140 |
|
July 3 |
400 boards @ $150 |
|
Oct. 23 |
74 boards @ $160 |
Wave Riders sold 710 boards at an average price of $250 per board. The company uses a periodic inventory system.
Instructions:
a. Calculate cost of goods sold, ending inventory, and gross profit under each of the following inventory valuation methods:
First-in, first-out
Last-in, first-out
Weighted average
b. Which of the three methods would be chosen if management’s goal is to
(1) produce an up-to-date inventory valuation on the balance sheet?
(2) approximate the physical flow of a sand and gravel dealer?
(3) report low earnings (for tax purposes) for a separate electronics company that has been experiencing declining purchase prices?