Question-1:

Solution-
a) Cost of goods available for sale:
$
Beginning Inventory (1500 × $7) $10500
Purchase:
March 5 (3000×$8) $24000
March 13 (5500×$9) $49500
March 21 (4000×$10) $40000
March 26 (2000×$11) $22000
Cost of goods available for sale $146000
b)
Kyoto Distribution
Inventory Ledger
(FIFO Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Mar-1 Inventory 1500 7 10500
Mar-5 Purchase 3000 8 24000 1500 7 10500
3000 8 24000
Mar-13 Purchase 5500 9 49500 1500 7 10500
3000 8 24000
5500 9 49500
Mar-21 Purchase 4000 10 40000 1500 7 10500
3000 8 24000
5500 9 49500
4000 10 40000
Mar-26 Purchase 2000 11 22000 1500 7 10500
3000 8 24000
5500 9 49500
4000 10 40000
2000 11 22000
Mar-31 Sales 1500 7 10500
3000 8 24000
5500 9 49500 1500 10 15000
2500 10 25000 2000 11 22000
12500 109000 3500 37000

Ending Inventory $ 37000

Cost of goods sold $109000
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 146000-37000= $109000
 Kyoto Distribution
Inventory Ledger
(LIFO Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Mar-1 Inventory 1500 7 10500
Mar-5 Purchase 3000 8 24000 1500 7 10500
3000 8 24000
Mar-13 Purchase 5500 9 49500 1500 7 10500
3000 8 24000
5500 9 49500
Mar-21 Purchase 4000 10 40000 1500 7 10500
3000 8 24000
5500 9 49500
4000 10 40000
Mar-26 Purchase 2000 11 22000 1500 7 10500
3000 8 24000
5500 9 49500
4000 10 40000
2000 11 22000
Mar-31 Sales 2000 11 22000
4000 10 40000
5500 9 49500 2000 8 16000
1000 8 8000 1500 7 10500
12500 119500 3500 26500

Ending Inventory $ 26500

Cost of goods sold $119500
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 146000 - 26500= $119500

Kyoto Distribution
Inventory Ledger
(Average Cost Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Mar-1 Inventory 1500 7 10500
Mar-5 Purchase 3000 8 24000 4500 7.67 34500
Mar-13 Purchase 5500 9 49500 10000 8.4 84000
Mar-21 Purchase 4000 10 40000 14000 8.86 124000
Mar-26 Purchase 2000 11 22000 16000 9.13 146000
Mar-31 Sales 12500 9.13 114125 3500 9.13 31955

Ending Inventory $ 31955

Cost of goods sold $114125
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 146000-31955= $114125

c)
FIFO method results in the highest inventory amount ($37000).
LIFO method results in the highest cost of goods sold ($119500)
Question-2:
Solution:
a) Cost of goods available for sale:
$
Beginning Inventory (400 × $8) $3200
Purchase:
February 20 (600×$9) $5400
March 5 (500×$10) $5000
August 12 (300×$11) $3300
December 8 (200×$12) $2400
Cost of goods available for sale $19300
b)
Lu Company
Inventory Ledger
(FIFO Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Jan-1 Inventory 400 8 3200
Feb-20 Purchase 600 9 5400 400 8 3200
600 9 5400
Mar-5 Purchase 500 10 5000 400 8 3200
600 9 5400
500 10 5000
Aug- Purchase 300 11 3300 400 8 3200
12 600 9 5400
500 10 5000
300 11 3300
Dec-8 Purchase 200 12 2400 400 8 3200
600 9 5400
500 10 5000
300 11 3300
200 12 2400
Mar-31 Sales 400 8 3200
600 9 5400 300 11 3300
500 10 5000 200 12 2400
1500 13600 500 5700

Ending Inventory $ 5700

Cost of goods sold $13600
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 19300-5700= $13600
 Lu Company
Inventory Ledger
(LIFO Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Jan-1 Inventory 400 8 3200
Feb-20 Purchase 600 9 5400 400 8 3200
600 9 5400
Mar-5 Purchase 500 10 5000 400 8 3200
600 9 5400
500 10 5000
Aug- Purchase 300 11 3300 400 8 3200
12 600 9 5400
500 10 5000
300 11 3300
Dec-8 Purchase 200 12 2400 400 8 3200
600 9 5400
500 10 5000
300 11 3300
200 12 2400
Mar-31 Sales 200 12 2400
300 11 3300 400 8 3200
500 10 5000 100 9 900
500 9 4500 500 4100
1500 15200

Ending Inventory $ 4100

Cost of goods sold $15200
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 19300-4100= $15200

Lu Company
Inventory Ledger
(LIFO Method)
Date Explanation Purchase Cost of goods sold Balance
Unit Rate Amount Unit Rate Amount Unit Rate Amount
Jan-1 Inventory 400 8 3200
Feb-20 Purchase 600 9 5400 1000 8.6 8600
Mar-5 Purchase 500 10 5000 1500 9.07 13600
Aug- Purchase 300 11 3300 1800 9.39 16900
12
Dec-8 Purchase 200 12 2400 2000 9.65 19300
Mar-31 Sales 1500 9.65 14475 500 9.65 4825

Ending Inventory $ 4825

Cost of goods sold $14475
Proving the accuracy of cost of goods sold:
Cost of goods sold = Cost of goods available for sale – Ending Inventory= 19300-4825= $14475

c)
FIFO method results in the highest inventory amount ($5700).
LIFO method results in the highest cost of goods sold ($15200)

Question-3:
Solution:
a) Calculations of Ending Inventory:
FIFO LIFO
Ending Inventory 30000×2.80=$84000 (15000×2.13 ¿+ ¿2.40)
=$67950
Cost of goods sold (32000+595000)-84000= (32000+595000)-67950=
543000 559050

Reiko Co.
Condensed Income Statement
Particulars FIFO LIFO
Sales Revenue $865,000 $865,000
Less: Cost of goods sold (543000) (559050)
Gross Profit 322000 305950
Operating expenses (147000) (147000)
Income before tax 175000 158950
Less: tax (34%) (59500) (54043)
Net Income $115500 $104907

b)
1) FIFO method produces the more meaningful inventory amount for the balance sheet because the units
are closed at the most recent purchase.
2) LIFO method produces the more meaningful net income for the balance sheet because the costs are
closed at the most recent purchases against the sales.
3) FIFO method is more likely to approximate actual physical flow of the goods. Because it
assumes that the oldest inventory items are sold first, which matches the physical
flow of goods.
4) There will be $5,457 additional cash available for management under LIFO than under FIFO because
income taxes are $54,043 under LIFO and $59,500 under FIFO.