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Analyzing the Effects of Four Alternative Inventory Methods in a Periodic Inventory System [LO3]

Gladstone Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2009, the accounting records for the most popular item in inventory showed the following:


Transactions                                                       Units                                     Unit Cost 

  Beginning inventory, January 1, 2009                                   1,800                                     $5.00   

  Transactions during 2009:                                                                                                                           

  a.            Purchase, January 30                                                   2,500                                     6.20      

  b.            Sale, March 14 ($10 each)                                          (1,450    )                                                                              

  c.             Purchase, May 1                                                            1,200                                     8.00      

  d.            Sale, August 31 ($10 each)                                        (1,900    )                                                                              

Requirement 1:

Compute the amount of goods available for sale, ending inventory, and cost of goods sold at December 31, 2009, under each of the following inventory costing methods. For Specific Identification, assume that the March 14, 2009, sale was selected two-fifths from the beginning inventory and three-fifths from the purchase of January 30, 2009. And that the sale of August 31, 2009, was selected from the remainder of the beginning inventory, with the balance from the purchase of May 1, 2009.

Requirement 2:

(a)          Of the four methods, which will result in the highest gross profit?

 (b)         Of the four methods, Which will result in the lowest income taxes?





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