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    HW 6

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    Mishalm96
    Elsa's Boards purchased snowboards throughout September and sold 121 snowboards that month. Using the periodic inventory system, the document shows purchases and costs. Under FIFO, ending inventory is 20 snowboards at $105 each for $2,100. Cost of goods sold is $12,342. Under LIFO, ending inventory is 20 snowboards at $97 each for $1,940. Cost of goods sold is $12,502. The sum of ending inventory and cost of goods sold is the same ($14,442) under both FIFO and LIFO because the total costs are the same, but FIFO results in higher reported profits while LIFO results in lower reported profits

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    HW 6

    Uploaded by

    Mishalm96
    2K views3 pages
    Elsa's Boards purchased snowboards throughout September and sold 121 snowboards that month. Using the periodic inventory system, the document shows purchases and costs. Under FIFO, ending inventory is 20 snowboards at $105 each for $2,100. Cost of goods sold is $12,342. Under LIFO, ending inventory is 20 snowboards at $97 each for $1,940. Cost of goods sold is $12,502. The sum of ending inventory and cost of goods sold is the same ($14,442) under both FIFO and LIFO because the total costs are the same, but FIFO results in higher reported profits while LIFO results in lower reported profits

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    Accounting I

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    hw 6

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    Elsa's Boards purchased snowboards throughout September and sold 121 snowboards that month. Using the periodic inventory system, the document shows purchases and costs. Under FIFO, ending inventory is 20 snowboards at $105 each for $2,100. Cost of goods sold is $12,342. Under LIFO, ending inventory is 20 snowboards at $97 each for $1,940. Cost of goods sold is $12,502. The sum of ending inventory and cost of goods sold is the same ($14,442) under both FIFO and LIFO because the total costs are the same, but FIFO results in higher reported profits while LIFO results in lower reported profits

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    2K views3 pages

    HW 6

    Uploaded by

    Mishalm96
    Elsa's Boards purchased snowboards throughout September and sold 121 snowboards that month. Using the periodic inventory system, the document shows purchases and costs. Under FIFO, ending inventory is 20 snowboards at $105 each for $2,100. Cost of goods sold is $12,342. Under LIFO, ending inventory is 20 snowboards at $97 each for $1,940. Cost of goods sold is $12,502. The sum of ending inventory and cost of goods sold is the same ($14,442) under both FIFO and LIFO because the total costs are the same, but FIFO results in higher reported profits while LIFO results in lower reported profits

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
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    The passage discusses the inventory costing methods FIFO and LIFO. It provides an example of calculating ending inventory and cost of goods sold for a snowboard company using each method.

    FIFO will make sure the older, less expensive inventory cost is transferred to COGS. This makes a lower expense on the income statement and higher profit which also leads to higher income taxes.

    Under LIFO, the ending inventory balance is calculated at previous costs whereas the most recent costs appear in the cost of goods sold.

    Mishal Mustafa

    BTA111
    Prof Wu
    Exercise Six
    E6-4 Elsa’s Boards sells a snowboard, Xpert, that is popular with snowboard enthusiasts.
    Information relating to Elsa’s purchases of Xpert snowboards during September is shown
    below. During the same month, 121 Xpert snowboards were sold. Elsa’s uses a periodic
    inventory system.
    Date Explanation Units Unit Cost Total Cost
    Sept. 1 Inventory 26 $ 97 $2,522
    Sept. 12 Purchases 45 102 4,590
    Sept. 19 Purchases 20 104 2,080
    Sept. 26 Purchases 50 105 5,250
    Totals 141 $14,442
    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?

    a) Ending Inventory = Beginning Inventory + Purchases made during month – Units sold in
    the month
    = 26 + 115 – 121
    = 20 units
    FIFO: most recent cost, September 26th
    20 units * $105 per unit = $2100
    COGS for September 31st under FIFO
    Particulars Amount
    Earliest cost, Sept 1st
    26 units * $97 per unit $2,522

    Next earliest cost, Sept 12th


    45 units * $102 per unit $4,590

    Next earliest cost, Sept 19th


    20 units * $104 per unit $2,080

    Next earliest cost, Sept 26th


    30 units * $105 per unit $3,150
    Total Cost of 121 units
    sold during September $12,342

    LIFO:
    20 units * $97 per unit = $1,940
    COGS September 30 under LIFO
    Particulars Amount
    th
    Earliest cost, Sept 26
    50 units * $105 per unit $5,250

    Next earliest cost, Sept 19th


    20 units * $104 per unit $2,080

    Next earliest cost, Sept 12th


    45 units * $102 per unit $4,590

    Next earliest cost, Sept 1st


    6 units * $97 per unit $582
    Total Cost of 121 units
    sold during September $12,502

    b) Sum of Ending Inventory and COGS in FIFO: $2,100 + $12,342 = $14,442


    Sum of Ending Inventory and COGS in LIFO: $1,940 + $12,502 = $14,442

    Under FIFO, when the cost of inventory is rising, FIFO will make sure the older, less
    expensive inventory cost is transferred to COGS. This makes a lower expense on the
    income statement and higher profit which also leads to higher income taxes.

    Under LIFO, when the cost of recently obtained inventories goes higher, as compared to
    inventories purchased earlier. As a result, the ending inventory balance is calculated at
    previous costs whereas the most recent costs appear in the cost of goods sold. By moving
    their high cost inventories to their cost of goods sold, businesses can lower their reported
    profit levels and defer income tax recognition.

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