Johnson Ltd Required:
A

question 115

Essay

Johnson Ltd. began operations on January l, 2019. Merchandise purchases and four alternative methods of valuing inventory for the first two years of operations are summarized below:
$$\begin{array} { | l | r | r | } \hline \text { Purchases } & 2019 & 2020 \\\hline \text { Ending inventory } & \$ 700,000 & \$ 850,000 \\\hline - \text { Specific identification } & & \\\hline \text { - FIFO } & 210,000 & 203,000 \\\hline \text { - Average cost } & 238,000 & 188,000 \\\hline - \text { Lower of cost and market } & 224,000 & 189,000 \\\hline\end{array}$$ Required:
a. Which of the four methods listed above does not apply the matching principle? Briefly explain.
b. Determine the cost flow assumption or inventory valuation method that would report the highest net income for 2019.
c. Assuming that FIFO had been used for both years, how much would the cost of goods sold be for 2020?

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Definitions:

Thylakoid Membrane

A membrane-bound compartment inside chloroplasts and cyanobacteria, involved in the light-dependent reactions of photosynthesis.

Stroma

The supportive tissue of an epithelial organ, tumor, gonad, etc., consisting of connective tissues and blood vessels.

Thylakoid Compartment

A membrane-bound compartment inside chloroplasts and cyanobacteria that is the site of the light-dependent reactions of photosynthesis.

Yields ATP

The process of producing ATP (adenosine triphosphate), the primary energy carrier in all living organisms, typically via cellular respiration or photosynthesis.