Inventory Flow Assumptions
Flat TV Uses a Perpetual Inventory System

question 22

Essay

Inventory flow assumptions
Flat TV uses a perpetual inventory system. Shown below are Flat TV's beginning inventory of a particular product and purchases during January:
On January 23 (prior to the purchase on January 25), Flat TV sold 13 units of this product.
Determine the cost of goods sold relating to the sale on January 23 under each of the following flow assumptions. (Show your computations.)
$$\begin{array} { | l | c | c | c | } \hline & \text { Quantity } & \text { Unit Cost } & \text { Total Cost } \\\hline \text { Beginning inventory (Jan. 1) } & 6 & \$ 195 & \$ 1,170 \\\hline \text { Purchase (Jan. 6) } & 12 & \$ 225 & 2,700 \\\hline \text { Purchase (Jan. 25) } & \underline { 12 } & \$ 230 & \underline { 2,760 } \\\hline \text { Total } & \underline { 30 } & & \$ 6,630 \\\hline\end{array}$$ $\begin{array}{|l|l|}\hline \text { (a) LIFO } & \$ \underline{\quad\quad}\\\hline \text { (b) FIFO } & \$ \underline{\quad\quad}\\\hline \text { (c) Average cost (or moving average) } & \$\underline{\quad\quad} \\\hline\end{array}$

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Definitions:

Debt-Equity Ratio

A measure of a company's financial leverage, calculated by dividing its total liabilities by shareholder equity.

Residual Dividend Policy

A strategy where companies pay dividends from the remaining earnings after all operational and growth expenses are covered.

After-Tax Earnings

Net income of a business after all taxes have been deducted, indicating the actual profit that remains for shareholders.

Retention Ratio

The proportion of net income that is retained in the company rather than distributed to shareholders as dividends, indicating how much money is reinvested in the business.