Kip started a wholesale store this year selling bulk peanut butter. In January of this year Kip purchased an initial five tubs of peanut butter for a total cost of $5,000. In July Kip purchased three tubs for a total cost of $6,000. Finally, in November Kip bought two tubs for a total cost of $1,000. Kip sold six tubs by year end. What is Kip's ending inventory under the FIFO cost-flow method?

Question

Quizplus · Accepted Answer

Kip had $12,000 of goods available for sale. Under the FIFO method he sold all five tubs from January ($5,000) and one of the tubs from July ($2,000). Hence, his ending inventory consisted of $5,000 (two tubs from July $4,000 plus both tubs from November $1,000). Note that taxpayers (other than tax shelters) with average annual gross receipts of $25 million or less over the three prior tax years can elect to use the cash method of accounting for the purchase, production, or sale of merchandise.

Kip Started a Wholesale Store This Year Selling Bulk Peanut