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Inventory valuation
methods: computations and concepts. Wave Riders
Surfboard Company began business on January 1 of the current year. Purchases of
surfboards were as follows:
|
1/3:
|
100
boards @$125
|
|
3/17:
|
50
boards @ $130
|
|
5/9:
|
246
boards @140
|
|
7/3:
|
400
boards @ $150
|
|
10/23:
|
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?
