4. Inventory valuation methods: computations and concepts.
Wild Riders Surfboard Company began business on January 1 of the current year. Purchases of surfboards were as follows:
|
Date |
Quantity |
Unit Cost |
Total Cost |
|
1/3 |
100 |
$125 |
$12,500 |
|
4/3 |
200 |
$135 |
$27,000 |
|
6/3 |
100 |
$145 |
$14,500 |
|
7/3 |
100 |
$155 |
$15,500 |
|
Total |
500 |
$69,500 |
Wild Riders sold 400 boards at $250 per board on the dates listed below. The company uses a perpetual inventory system.
|
Date |
Quantity Sold |
Unit Price |
Total Sales |
|
3/17 |
50 |
$250 |
$12,500 |
|
5/17 |
75 |
$250 |
$18,750 |
|
8/10 |
275 |
$250 |
$68,750 |
|
Total |
400 |
$100,000 |
Instructions
- 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) show the lowest net income for tax purposes?
