Jones Company had 100 units in beginning inventory at a total cost of $10,000.The company

purchased 200 units at a total cost of $26,000. At the end of the year, Jones had 80 units in
ending inventory.
Instructions
(a) Compute the cost of the ending inventory and the cost of goods sold under (1) FIFO, (2)
LIFO, and (3) average-cost.
(b) Which cost flow method would result in the highest net income?
(c) Which cost flow method would result in inventories approximating current cost in the balance
sheet?
(d) Which cost flow method would result in Jones paying the least taxes in the first year?

To answer these questions, we need to understand the three cost flow methods: FIFO, LIFO, and average-cost.

FIFO (First-In, First-Out): This method assumes that the goods purchased or produced first are the first to be sold. Under FIFO, the cost of ending inventory is based on the most recent purchases, whereas the cost of goods sold is based on the earliest purchases.

LIFO (Last-In, First-Out): This method assumes that the goods purchased or produced last are the first to be sold. Under LIFO, the cost of ending inventory is based on the earliest purchases, whereas the cost of goods sold is based on the most recent purchases.

Average-cost: This method takes the average cost per unit of all inventory items and applies it to the cost of goods sold and ending inventory.

Now let's calculate the cost of ending inventory and the cost of goods sold for each cost flow method:

(a) FIFO:
Cost of ending inventory = (Number of units in ending inventory) * (Cost per unit)
In this case, there are 80 units in ending inventory.
To calculate the cost per unit, we first need to calculate the cost per unit for the purchases:
Cost per unit for the 200 units purchased = (Total cost of purchases) / (Total number of units purchased)
Cost per unit for the 200 units purchased = $26,000 / 200 units = $130 per unit
Cost of ending inventory under FIFO = 80 units * $130 per unit = $10,400

To find the cost of goods sold, we subtract the cost of ending inventory from the total cost of goods available for sale:
Cost of goods sold under FIFO = (Total cost of goods available for sale) - (Cost of ending inventory)
Total cost of goods available for sale = Cost of beginning inventory + Cost of purchases
Total cost of goods available for sale = $10,000 + $26,000 = $36,000
Cost of goods sold under FIFO = $36,000 - $10,400 = $25,600

(b) To determine which cost flow method would result in the highest net income, we need to compare the cost of goods sold for each method. The lower the cost of goods sold, the higher the net income.
From our calculations, it can be observed that the cost of goods sold is lowest under LIFO. Therefore, LIFO would result in the highest net income.

(c) To determine which cost flow method would result in inventories approximating current cost in the balance sheet, we need to consider the most recent purchases. FIFO would result in inventories approximating current cost in the balance sheet because it assumes that the most recent purchases are in ending inventory.

(d) To determine which cost flow method would result in Jones paying the least taxes in the first year, we need to compare the net income under each method. The lower the net income, the lower the taxes paid.
From our calculations, it can be observed that the net income is lowest under LIFO. Therefore, LIFO would result in Jones paying the least taxes in the first year.

In summary:
(a) The cost of ending inventory and the cost of goods sold are as follows:
- FIFO: Ending inventory = $10,400, Cost of goods sold = $25,600
- LIFO: Ending inventory = $9,600, Cost of goods sold = $26,400
- Average-cost: Ending inventory = $10,000 (assuming the average cost per unit is $130), Cost of goods sold = $26,000

(b) LIFO would result in the highest net income.

(c) FIFO would result in inventories approximating current cost in the balance sheet.

(d) LIFO would result in Jones paying the least taxes in the first year.