Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 3

Cost-flow assumptions—FIFO and LIFO using periodic and perpetual systems The inventory records of Cushing, Inc., reflected the following information for the year ended December 31, 2010:

	Number of Units	Unit Cost	Total Cost
Inventory, January 1	200	$13	$ 2,600
Purchases:
May 30	320	15	4,800
September 28	400	16	6,400
Goods available for sale	920		$13,800
Sales:
February 22	(140)
June 11	(300)
November 1	(380)
Inventory, December 31	100

Required:

a. Assume that Cushing, Inc., uses a periodic inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.

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b. Assume that Cushing, Inc., uses a perpetual inventory system. Calculate cost of goods sold and ending inventory under FIFO and LIFO.

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c. Explain why the FIFO results for cost of goods sold and ending inventory are the same in your answers to parts a and b, but the LIFO results are different.

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d. Explain why the results from the LIFO periodic calculations in part a cannot possibly represent the actual physical flow of inventory items.

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