Vinnie’s House of Televisions has 75 identical 27-inch color monitors in stock on January 1,

€ 1997. Vinnie maintains records of the serial numbers of each monitor to track their costs.

Vinnie purchased the 75 monitors on December 5, 1996, for $450 each. He also purchased 50 on January 2, 1997, for $500 each, and an additional 65 on January 15, 1997, for $600 each.

Each monitor is priced to sell at $1,000. Vinnie sold 130 monitors during the month ofJanuary.

REQUIRED:

a. Compute gross profit and ending inventory for the month if the company uses the periodic method and adheres to each of the following:

(1) FIFO cost flow assumption

(2) Averaging cost flow assumption Chapter 7 Merchandise Inventory 345

(3) LIFO cost flow assumption

b. Assume that Vinnie uses the specific identification method to compute the cost of goods sold. Explain how Vinnie could manipulate the gross profit number. What are the highest and the lowest gross profit amounts Vinnie could report? What are some possible factors that could motivate Vinnie to report either the highest or the lowest net income amount?