Acc101 Financial Accounting: P8-1 On January 15, 2005, BassTrack sold 1,000 Ace-5 fishing reels

Acc101 Financial Accounting

PROBLEM 8.1 Four Methods of Inventory Valuation
On January 15, 2005, BassTrack sold 1,000 Ace-5 fishing reels to Angler's Warehouse. Immediately prior to this sale, BassTrack's perpetual inventory records for Ace-5 reels included the following cost layers:
Purchase Date Quantity Unit Cost Total Cost
Dec. 12, 2004 600 29 17,400
Jan. 9, 2005 900 32 28,800
Total on hand 1,500 46,200

Instructions
Note: We present this problem in the normal sequence of the accounting cycle-that is, journal entries before ledger entries. However, you may find it helpful to work part b first.
a. Prepare a separate journal entry to record the cost of goods sold relating to the January 15 sale of 1,000 Ace-5 reels, assuming that BassTrack uses:
1. Specific identification (500 of the units sold were purchased on December 12, and the remaining 500 were purchased on January 9)
2. Average cost
3. FIFO
4. LIFO
b. Complete a subsidiary ledger record for Ace-5 reels using each of the four inventory valuation methods listed above. Your inventory records should show both purchases of this product, the sale on January 15,and the balance on hand at December12,January9,and January 15.Use the formats for inventory subsidiary records illustrated on pages 293-97 of this chapter.
c. Refer to the cost of goods sold figures computed in part a. For financial reporting purposes, can the company use the valuation method that resulted in the lowest cost of goods sold if, for tax purposes, it used the method that resulted in the highest cost of goods sold? Explain.
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