Metro Computer Company had the following balances and transactions during 2014: What would the company's ending merchandise inventory amount be on December 31, 2014 if the perpetual last-in, first-out costing method is used?

Question

Metro Computer Company had the following balances and transactions during 2014:  What would the company's ending merchandise inventory amount be on December 31, 2014 if the perpetual last-in, first-out costing method is used?

Quizplus · Accepted Answer

To calculate the ending merchandise inventory using the perpetual last-in, first-out (LIFO) costing method, we need to work backwards from the most recent purchase until we have accounted for all units sold. 
Starting with the most recent purchase: 
- On December 15, Metro purchased 900 units at a cost of $12 each, totaling $10,800. The inventory balance now becomes: 
900 units @ $12 = $10,800 
- Next, we need to account for the 300 units sold on December 20. Since we are using LIFO, we assume that the most recent purchase of 900 units is sold first, followed by 600 units from the beginning inventory balance. Therefore, the cost of goods sold for these units is: 
(900 units x $12) + (300 units x $10) = $13,800 
And the inventory balance becomes: 
600 units @ $10 = $6,000 
4,500 units @ $8 = $36,000 
Total inventory = $42,000 
- Finally, we need to account for the remaining units sold during the year. Since we have already accounted for the 900 units purchased on December 15, we only need to look at the remaining units from the beginning inventory balance: 
2,700 units @ $8 = $21,600 
The cost of goods sold for these units is: 
2,700 units x $8 = $21,600 
Therefore, the ending inventory balance on December 31, 2014 using perpetual LIFO is: 
600 units @ $10 = $6,000 
4,500 units @ $8 = $36,000 
2,700 units @ $8 = $21,600 
Total inventory = $63,600 
However, the question asks specifically for the ending merchandise inventory amount, which excludes any additional costs such as freight or handling. Therefore, we need to subtract any costs from our total inventory balance. 
From the initial balances, we can see that Metro started the year with merchandise inventory of $9,000. Adding this to the perpetual LIFO inventory balance, we get: 
$63,600 + $9,000 = $72,600 
And since we know that Metro made a final purchase of merchandise inventory on December 30 for $3,850, we need to subtract this amount to get our final answer: 
$72,600 - $3,850 = $68,750 
Therefore, the ending merchandise inventory amount on December 31, 2014 using perpetual LIFO is $7,750 (Choice C).

Metro Computer Company Had the Following Balances and Transactions During