Question

03j Company began business on the first day of 2019. The following are the Company's purchases of inventory: Date Inventory Items Quantity Cost per unit March 17 Item A 100 units SIO May 19 Item B 60 units S12 Nov 14 Item C 100 units $13 On October 20, 2019, 125 units were sold, for $35 cach, leaving inventory of 135 units. The tax rate for 2019 was 25%. The Company has no other operating expenses and uses a periodic inventory system Required: Please choose the best answer to the following questions based on the above information Suppose the Company uses LIFO for inventory valuation. What is the balance of the inventory account on December 31, 2019? O $1720 O $1620 $1420 $1350 Suppose the Company uses FIFO for inventory valuation. What is the net income for 2019? O $2306 25 O $3075 O $2156.25 O $2081.25 Suppose the Company uses LIFO for inventory valuation and a perpetual Inventory system. What is the gross profit for 2019? O $2775 O $2875 O $3075 O $3005

Answer 1

(A) If company use LIFO for inventory valuation than balance of inventory account on 31 Dec 2019 will be following:-

On Oct. 2019, 125 units were sold so 60 unites of item B(Received on may 2019) is sold first and balance of 65 unites (125 unites -60 unites) of item A is sold . Because we have applied LIFO method so "Last in" unites is sold first and than after other unites in order of "last In". Balance of inventory will be following:-

1-Item C (100 unites @13)=1300

2-Item A (35 unites @ 10))=350

Total =1650

Therefore Balance of inventory will be 1650 Using LIFO Method 0n 31 Dec 2019

(B) If company use FIFO for inventory valuation than balance of inventory account on 31 Dec 2019 will be following:-

On Oct. 2019, 125 units were sold so 100 unites of item C(Received on Nov 2014) is sold first and balance of 25 unites (125 unites -100 unites) of item A is sold . Because we have applied FIFO method so "First in" unites is sold first and than after other unites in order of "First In". Balance of inventory will be following:-

1-Item A (75 unites @10)=750

2-Item B (60 unites @ 12)=720

Total =1470

Therefore Balance of inventory will be following 1470 Using FIFO Method 0n 31 Dec 2019

Net Income is following:-

Opening inventory(Item A 100 @10+Item B 60 @12+Item C 100@ 13)=3020

Sale(125 units@ 35)=4375

Closing inventory(FIFO Method)=1470

Gross Profit=2825(4375+1470-3020)

Net Income=2118.75(Gross Profit=2825- 706.25 Tax 25% of 2825 )

(C) If Company use LIFO for inventory valuation than Gross profit will be following:-

Opening inventory(Item A 100 @10+Item B 60 @12+Item C 100@ 13)=3020

Sale(125 units@ 35)=4375

Closing inventory(LIFO Method)=1650 (as computed above)

Gross Profit=3005(4375+1650-3020)