EXERCISE 1

Shanrock Company uses the periodic inventory method and had the following inventory information available:

Units Unit Cost Total Cost

1/1 Beginning Inventory 100 $4 $ 400

1/20 Purchase 400 $6 2,400

7/25 Purchase 200 $7 1,400

10/20 Purchase 300 $8 2,400

1,000 $6,600

A physical count of inventory on December 31 revealed that there were 400 units on hand.

Instructions

Answer the following independent questions and show computations supporting your answers.

1. Assume that the company uses the FIFO method. The value of the ending inventory at December 31 is $__________.

2. Assume that the company uses the Average-Cost method. The value of the ending inventory on December 31 is $__________.

3. Assume that the company uses the LIFO method. The value of the ending inventory on December 31 is $__________.

4. Determine the difference in the amount of income that the company would have reported if it had used the FIFO method instead of the LIFO method. Would income have been greater or less?