# inventory accounting

Pages: 32 (2391 words) Published: November 28, 2013
Inventory Valuation

1

Lewis Corporation
Case: 6-2
Page: 173
2

Lewis Corporation
FIFO
Uses periodic inventory system

3

Inventory Transaction 2005-2007
No. of Cartons Price per Carton
2005 2006 2007 2005 2006 2007
Beginning balance 1840 1020 1040 \$20.00
Purchases
600 700 1000 \$20.25 \$21.50 \$22.50
800 700 700 \$21.00 \$21.50 \$22.75
400 700 700 \$21.25 \$22.00 \$23.00
200 1000 700 \$21.50 \$22.25 \$23.50
Sales
2820 3080 2950 \$34.00 \$35.75 \$35.75
4

Discussion Question
Calculate the cost of goods sold and year-end
inventory amounts for 2005, 2006, and 2007
using..,
• FIFO
• LIFO
• Average cost method

5

Cartons
2005
Cost of goods sold

Inventory

2006
Cost of goods sold

Inventory

2007
Cost of goods sold

Inventory

1840
600
380

2820
420
400
200
1020

FIFO
Price
\$20.00
\$20.25
\$21.00

\$36,800.00
\$12,150.00
\$7,980.00

\$21.00
\$21.25
\$21.50

\$56,930.00
\$8,820.00
\$8,500.00
\$4,300.00
\$21,620.00

420
400
200
700
700
660
3080
40
1000
1040

\$21.00
\$21.25
\$21.50
\$21.50
\$21.50
\$22.00

40
1000
1000
700
210
2950
490
700

\$22.00
\$22.25
\$22.50
\$22.75
\$23.00

1190

Value

Inventory Valuation
LIFO
Cartons Price

\$22.00
\$22.25

\$23.00
\$23.50

\$8,820.00
\$8,500.00
\$4,300.00
\$15,050.00
\$15,050.00
\$14,520.00
\$66,240.00
\$880.00
\$22,250.00
\$23,130.00
\$880.00
\$22,250.00
\$22,500.00
\$15,925.00
\$4,830.00
\$66,385.00
\$11,270.00
\$16,450.00
\$27,720.00

200
400
800
600
820
2820
1020

\$21.50
\$21.25
\$21.00
\$20.25
\$20.00

Value

Average Cost
Cartons Price
Value

\$4,300.00
\$8,500.00
\$16,800.00
\$12,150.00
\$16,400.00
\$58,150.00
\$20,400.00

2820
1020

\$20,400.00

1020

\$22.25
\$22.00
\$21.50
\$21.50

\$22,250.00
\$15,400.00
\$15,050.00
\$14,620.00

3080

3080
20
1020
1040

\$21.50
\$20.00

\$67,320.00
\$430.00
\$20,400.00
\$20,830.00

3080
1040

700
700
700
850

\$23.50
\$23.00
\$22.75
\$22.50

\$16,450.00
\$16,100.00
\$15,925.00
\$19,125.00

2950

\$22.55

\$66,513.65

2950
1020
20
150
1190

\$20.00
\$21.50
\$22.50

\$67,600.00
\$20,400.00
\$430.00
\$3,375.00
\$24,205.00

2950
1190

\$22.55

\$66,513.65
\$26,830.93

\$20.00

1020
1000
700
700
680

2820

\$20.46

\$57,685.92

\$20.46

\$57,685.92
\$20,865.12

\$20,865.12
\$21.51

\$66,247.72

\$21.51

\$66,247.72
\$22,369.36

1040

1190

\$22,369.36

6

\$26,830.93

FIFO vs. LIFO vs. Average Cost
Check on Calculation
FIFO
LIFO
Cost of goods sold
2005
2006
2007
Inventory - 2007

\$56,930.00
\$66,240.00
\$66,385.00
\$27,720.00
\$217,275.00

Average Cost

\$58,150.00 \$57,685.92
\$67,320.00 \$66,247.72
\$67,600.00 \$66,513.65
\$24,205.00 \$26,830.93
\$217,275.00 \$217,278.22
7

Discussion Question
Lewis corporation is considering switching from
FIFO to LIFO to reduce its income tax
expense
Assuming a corporate income tax rate of 40%,
calculate the tax savings this would have made
for 2005 to 2007
Would you recommend and Lewis make this
change?
8

Tax Expense Benefit
FIFO
LIFO
2005
2006
2007
2005
2006
2007
Sales
\$95,880.00 \$110,110.00 \$105,462.50 \$95,880.00 \$110,110.00 \$105,462.50 Cost of goods sold
\$56,930.00 \$66,240.00 \$66,385.00 \$58,150.00 \$67,320.00 \$67,600.00 Gross margin
\$38,950.00 \$43,870.00 \$39,077.50 \$37,730.00 \$42,790.00 \$37,862.50 Tax expense
\$15,580.00 \$17,548.00 \$15,631.00 \$15,092.00 \$17,116.00 \$15,145.00 Net income