Question

The purchase and sale of inventory by Ripple Inc. (Ripple) during the year ended April 30, 2018 is summarized below. Assume that sales are made on the first day of each quarter and purchases are made on the last day. Ripple pays for all its inventory in cash when it's delivered.



Required:
a. Determine cost of sales for the year ended April 30, 2018 and ending inventory on April 30, 2018 using FIFO and average cost, assuming that Ripple uses a periodic inventory control system.
b. How much cash was spent on inventory during 2018 under each cost formula? Is the amount of cash spent on inventory under each cost formula the same or different? Explain.
c. Which cost formula would you recommend if Ripple's objective was to minimize taxes? Explain.
d. Which cost formula would you use if you were Ripple's CEO and your bonus was based on net income? Explain.
e. Which cost formula would you recommend if the amount of Ripple's bank loan was a percentage of inventory? Explain.
f. Ripple uses the lower of cost and net realizable value to value its inventory. Is it necessary to make any adjustments to inventory on April 30, 2018 to ensure compliance with the lower of cost and NRV rule? Explain.
g. Does it matter which cost formula Ripple uses? Explainfully.


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  • CreatedFebruary 26, 2015
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