Applying and Analyzing Inventory Costing Methods At the beginning of the current period, Chen carried 1,000 units of its product with a unit cost of$15. A summary of purchases during the current period follows. During the period, Chen sold 2,800 units. Units UnitCost Cost Beginning Inventory 1,000 $ 15 S 15,000 ' Purchase #1 1,800 14 25,200 ' Purchase #2 800 12,800 i Purchase #3 1,200 22,800 i (a) Assume that Chen uses the first-in, first-out method. Compute both cost of good sold for the current period and the ending inventory balance. Use the nancial statement effects template to record cost of goods sold for the period. Ending inventory balance $ Cost of goods sold $ Use negative signs with answers, when appropriate. Balance Sheet Income Statement Noncash Contributed Earned Net Transaction CashAsset + Assets Liabilities + Capital + Capital Revenue ~ Expenses = Income Record FIFO cost ofgoods sold ' l l l l l l l l ' (b) Assume that Chen uses the lastin, rst-out method. Compute both cost of good sold for the current period and the ending inventory balance. Ending inventory balance 3; Cost of goods sold $ (c) Assume that Chen uses the average cost method. Compute both cost of good sold for the current period and the ending inventory balance. (Hint: Round average cost per unit two decimal places prior to calculating the Ending inventory balance. Calculate the Cost of Goods Sold (CGS) as: (CGS = Cost of goods available for sale - Ending inventory balance.) Ending inventory balance 35 (c) Assume that Chen uses the average cost method. Compute both cost ofgood sold forthe current period and the ending inventory balance. (Hint: Round average cost per unit two decimal places prior to calculating the Ending inventory balance. Calculate the Cost of Goods Sold (CGS) as: (CGS = Cost of goods available for sale - Ending inventory balance.) Ending inventory balance :5 Cost of goods sold 35 (d) Which of these three inventow costing methods would you choose to: 1. Reflect what is probably the physical flow of goods? OLIFOOFIFOOAverage Cost 2. Minimize income taxes for the period? OLIFOOFIFOOAverage Cost 3. Report the largest amount of income for the period? OLIFOOFIFOOAverage Cost Computing Depreciation, Net Book Value, and Gain or Loss on Asset Sale Lynch Company owns and operates a delivery van that originally cost $51,200. Lynch has recorded straight-line depreciation on the van for four years, calculated assuming a $5,000 expected salvage value at the end of its estimated sixyear useful life. Depreciation was last recorded at the end of the fourth year, at which time Lynch disposes of this van. a. Compute the net book value of the van on the disposal date. $ b. Compute the gain or loss on sale of the van if the disposal proceeds are: Use a negative sign with your answer if the sale results in a loss. 1. A cash amount equal to the van's net book value. $ 2. $23,000 cash. $ 3. $19,000 cash. 5