Question 1

Company Z had the following transactions in its first year of operations:

(1)On January 15, purchased 5,000 units of inventory for $20 each

(2)On March 1, purchased 10,000 units of inventory for $22 each

(3)On March 30, sold 7,000 units of inventory for $48 each

(4)On June 20, purchased 9,000 units of inventory for $25 each

(5)On August 10, sold 12,000 units of inventory for $50 each

(6)On September 3, sold 1,000 units of inventory $49 each

Company Z records transactions using a perpetual system. Calculate the cost of goods sold and ending inventory using (1) average cost, (2) FIFO, and (3) LIFO.

Company Z asks you to advise them on which inventory method to use. What method would you choose if the company wants to take out a loan from a bank in the near future that requires the company to meet a large threshold for its current assets' value? What method would you choose if the company has a near-term investment opportunity that requires more cash on hand? Explain your answers.