Question

Applying and Analyzing Inventory Costing Methods At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of $15. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units. Units Unit Cost Cost Purchase #1 Purchase #2 Purchase #3 Beginning Inventory 1,000 15 $15,000 1,800 800 1,200 14 25,200 16 12,800 19 22,800 (a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the financial statement effects template to record cost of goods sold for the period. Ending inventory balance o Cost of goods sold Use negative signs with answers, when appropriate. Balance Sheet Noncash Contributed Earned Transaction Cash Asset + Assets Liabilities + Capital + Capital Record FIFO cost of goods sold 0 Income Statement Net Revenue . Expenses # Income 0

Answer 1

a)

b)

c)

d)

1) Reflect what is probably the physical flow of goods - FIFO Method

Under FIFO, latest goods which are purchased are sold first.

2) Minimize income taxes for the period - LIFO Method

Under LIFO, cost of goods sold is at high cost, and due to that, income gets decreased. As a result, tax will get decreased.

3) Report the largest amount of income for the period - FIFO Method

Under FIFO, it is quite opposite to LIFO where the cost is less, that results into high income.