Question

Delta Diamonds uses a periodic inventory system. The company had five one-carat diamonds available for sale this year: one was purchased on June 1 for $1,500, two were purchased on July 9 for $2,050 each, and two were purchased on September 23 for $2,150 each. On December 24, it sold one of the diamonds that was purchased on July 9.

Using the FIFO method, its cost of goods sold for the year ended is:

a. $4,100.b. $1,500.c. $4,300.d. $2,150.

Answer 1

Answer:

b. $1,500

Explanation:

Using the FIFO method, the first items in, should be the first items out.

Assuming that all one-carat diamonds are the same, even though the diamond sold was purchased on July 9, for inventory keeping using the FIFO method, this diamond should be valued at $1,500 since it is the value of the oldest item on stock.

Therefore, the cost of goods sold for the year is $1,500

Answer 2

Answer:

b. $1,500

Explanation:

FIFO Inventory valuation method requires that the Inventory which is purchased first should be sold first and inventory Purchased at last should be sold at last.

Purchases

Date                     Diamonds          Rate

June 1                     1                      $1,500

July 9                     2                      $2,050

September 23       2                      $2,150

Sale

December  24       1                       $1,500

Cost of goods sold = 1 x $1,500 = $1,500

The very first purchased dividend has rate of $1,500, so it will be sold first under FIFO method.