Tom Finger provides you with the following information in regard to his inventory for the 20X1 year (note that purchases are always made on the first day of the month before any sales):
a What would Tom's Cost of goods sold expense and Ending inventory value be if he used the perpetual inventory method,valuing his inventory at weighted average cost? (Complete the WAC inventory form given below - the first 3 columns have been completed for you. )
b Prepare an abbreviated Income Statement for 20X1 using the above weighted average cost figures,and assuming other expenses are $70,000.
c What would be 3 advantages in Tom's situation of using the:
i perpetual inventory weighted average cost for his business?
ii existing (periodic)system?
WAC inventory form

Question

Tom Finger provides you with the following information in regard to his inventory for the 20X1 year (note that purchases are always made on the first day of the month before any sales):
  a What would Tom's Cost of goods sold expense and Ending inventory value be if he used the perpetual inventory method,valuing his inventory at weighted average cost? (Complete the WAC inventory form given below - the first 3 columns have been completed for you. )
b Prepare an abbreviated Income Statement for 20X1 using the above weighted average cost figures,and assuming other expenses are $70,000.
c What would be 3 advantages in Tom's situation of using the:
i perpetual inventory weighted average cost for his business?
ii existing (periodic)system?
WAC inventory form

Quizplus · Accepted Answer

The Answer is a

a b c i Perpetual inventory weighted average cost. Lower cost of goods sold,so higher gross profit and net profit. Higher ending inventory,which makes the Balance Sheet look better. Weighted average tends to smooth the effect of large price increases or decreases. ii Existing (periodic). Higher cost of goods sold,so lower gross profit and net profit,so lower taxes. Less time and cost of recording each item in and out. Previous years' results are more comparable if periodic has been used previously.

b

c i Perpetual inventory weighted average cost.
Lower cost of goods sold,so higher gross profit and net profit.
Higher ending inventory,which makes the Balance Sheet look better.
Weighted average tends to smooth the effect of large price increases or decreases.
ii Existing (periodic).
Higher cost of goods sold,so lower gross profit and net profit,so lower taxes.
Less time and cost of recording each item in and out.
Previous years' results are more comparable if periodic has been used previously.

Tom Finger Provides You with the Following Information in Regard