Approximating current cost in the balance sheet


Problem:

Jones Company had 100 units in beginning inventory at a total cost of $10,000. The company purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in ending inventory.

Instructions:

(a) Compute the cost of the ending inventory and the cost of goods sold under: (1) FIFO, (2) LIFO, and (3) average-cost.

(b) Which cost flow method would result in the highest net income?

(c) Which cost flow method would result in inventories approximating current cost in the balance sheet?

(d) Which cost flow method would result in Jones paying the least taxes in the first year?

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Accounting Basics: Approximating current cost in the balance sheet
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