Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios. During its first month of activity, the company has made the following transactions:

February 2: KG PRICE PER KG AMOUNT

Purchase of Pistachios: 2500 $12 $30,000

Purchase of Almonds 4000 $7 $28,000 Purchase of Peanuts 6000 $5 $30,000

February 3: KG PRICE PER KG AMOUNT

Purchase of Pistachios: 1500 $14 $21,000

Purchase of Almonds: 2000 $8 $16,000 Purchas of Peanuts: 2000 $6 $12,000

February 6: Sold to several clients:

KG PRICE PER KG AMOUNT

Pistachios: 2000 $22 $44,000

Almonds: 2500 $13 $32,500

Peanuts: 3000 $9 $27,000

February 6: Sold to Fruits Lovers Inc:

KG PRICE PER KG AMOUNT

Pistachios: 500 $22 $11,000

Almonds: 1000 $13 $13,000

Peanuts: 1500 $10 $15,000

February 12:

KG PRICE PER KG AMOUNT

Purchase of Pistachios: 1500 $16 $24,000

Purchase of Almonds: 2000 $10 $20,000

February 13: Sale of peanuts to peanuts lovers Inc...:

KG PRICE PER KG AMOUNT

3500 $10 $35,000

February 14: Purchase of Peanuts

KG PRICE PER KG AMOUNT

6000 $6 $36,000

February 19: Sold to several clients:

KG PRICE PER KG AMOUNT

PISTACHIOS: 1000 $23 $23,000

Almonds: 1500 $15 $22,500

Peanuts: 3000 $11 $33,000

February 25: Purchased from various suppliers:

KG PRICE PER KG AMOUNT

Pistachios: 1000 $15 $15,000

Almonds: 1000 $11 $11,000

Peanuts: 1000 $6 $6,000

Besides these transactions, the company has had the following expenses:

Salaries: $3650 Electricity bill: $360 Renting of equipment: $950

Rent of warehouse and office: $1.650

Miscellaneous: $1.250

Jims accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the consequences it may have on his financial situation.

Relying on your accounting knowledge, Jim asks you the following questions:

1: Why in your opinion did Jims accountant recommend the average cost method and what difference is there with the three other methods? Explain the main characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net income in case of price fluctuation. (20 points)

2: Prepare an Income statement of the company at the end of February using as method of valuation of the inventory the average cost method, FIFO and LIFO for each one of the products sold by Jim, and calculate the balance of the inventory at the end of the month. Explain the calculations. (40 points: 30 points for the calculation and 10 for explanations)