Englehart Company sells two types of pumps. One is large and is for commercial use. The other is smaller and is used in residential swimming pools. The following inventory data is available for the month of March:
Price per
Units Unit Total
Residential Pumps
Inventory at Feb. 28: 200 $400 $80,000
Purchases:
March 10 500 $450 $225,000
March 20 400 $475 $190,000
March 30 300 $500 $150,000
Sales:
March 15 500 $540 $270,000
March 25 400 $570 $228,000
Inventory at Mar. 31: 500
Commercial Pumps
Inventory at Feb. 28: 600 $800 $480,000
Purchases:
March 3 600 $900 $540,000
March 12 300 $950 $285,000
March 21 500 $1,000 $500,000
Sales:
March 18 900 $1,080 $972,000
March 29 600 $1,140 $684,000
Inventory at Mar. 31: 500
Accounting
(a) Assuming Englehart uses a periodic inventory system, determine the cost of inventory on hand at March 31 and the cost of goods sold for March under first-in, first-out (FIFO).
(b) Assume Englehart uses dollar-value LIFO and one pool, consisting of the combination of residential and commercial pumps. Determine the cost of inventory on hand at March 31 and the cost of goods sold for March. Assume Englehart's initial adoption of LIFO is on March 1. Use the double extension method to determine the appropriate price indices. (Hint: The price index for February 28 / March 1 should be 1.00.)
Analysis
(a) Assume you need to compute a current ratio for Englehart. Which inventory method (FIFO or DV LIFO) do you think would give you a more meaningful current ratio?
(b) Some of Englehart's competitors use LIFO inventory costing and some use FIFO. How can an analyst compare the results of companies in an industry, when some use LIFO and others use FIFO?
Principles
(a) Can companies change from one inventory accounting method to another? If a company changes to an inventory accounting method used by most of its competitors, what are the trade-offs in terms of the conceptual framework discussed in Chapter 2 of the text?
(b) If a U.S. company decides to adopt iGAAP, what inventory accounting methods could it choose from?