This task assesses the following learning outcomes:

• Critically understand the differences between the methods of valuation of the inventory
• Knowing how to properly elaborate an income statement and determine the ending inventory balance.

Submission file format: Excel document with all the answers, clearly identifying all steps, results, journals and including comments besides each answer.

BUSINESS CASE (100 points)

Jim has recently opened a dry fruits wholesale company dedicated to the sale of peanuts, almonds and pistachios.

During its first month of activity, the company has made the following transactions:

February 2: Purchase of Pistachios: 2.500Kg@10$/Kg $ 25.000

Purchase of Almonds: 4.000Kg @ 5$/Kg $ 20.000

Purchas of Peanuts: 6.000Kg @ 3$/ Kg $ 18.000

February 3: Purchase of Pistachios: 1.500Kg@12$/Kg $18.000

Purchase of Almonds: 2.000Kg @ 6$/Kg $ 12.000

Purchas of Peanuts: 2.000Kg @ 4$/ Kg $ 8.000

February 6: Sold to several clients:

Pistachios: 2.000Kg@ 20$/Kg $40.000

Almonds: 2.500Kg @ 11$/Kg $ 27.500

Peanuts: 3.000Kg @ 7$/ Kg $ 21.000

February 6: Sold to Fruits Lovers Inc.:

Pistachios: 500Kg @20$/Kg. $ 10.000

Almonds: 1.000Kg @ 11$/Kg $ 11.000

Peanuts: 1.500Kg @ 8$/ Kg $ 12.000

February 12 Purchase of Pistachios: 1.500Kg@14$/Kg $ 21.000

Purchase of almonds: 2.000Kg @ 8$/Kg $ 16.000

February 13: Sale of peanuts to Peanuts Lovers Inc.: 3.500Kg @8$/kg $ 28.000

February 14: Purchase of Peanuts 6.000 Kg @4$/Kg $24.000

February 19: Sold to several clients:

Pistachios: 1.000Kg@ 21$/Kg. $ 21.000

Almonds: 1.500Kg @ 13$/Kg $ 19.500

Peanuts: 3.000Kg @ 9$/ Kg $ 27.000

February 25: Purchased from various suppliers:

Pistachios: 1.000Kg@13$/Kg. $ 13.000

Almonds: 1.000Kg @ 9$/Kg $ 9.000

Peanuts: 1.000Kg @ 4$/ Kg $ 4.000

Besides these transactions, the company has had the following expenses:

Salaries: $3500

Electricity bill: $300

Renting of equipment: $800

Rent of warehouse and office: $1.500

Miscellaneous: $1.200

Jims accountant recommended that he should use the average cost method in order to determine the cost of the inventory sold but he is not sure about the consequences it may have on his financial situation.

Relying on your accounting knowledge, Jim asks you the following questions:

1: Why in your opinion did Jims accountant recommend the average cost method and what difference is there with the three other methods? Explain the main characteristics of each method of valuation of the inventory and the consequences they may have on the valuation of the inventory and determination of the net income in case of price fluctuation. (20 points)