E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO 7-3]
Scoresby Inc. tracks the number of units purchased and sold throughout each year but applies its inventory costing method at the end of the year, as if it uses a periodic inventory system. Assume its accounting records provided the following information at the end of the annual accounting period, December 31. |
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Question & Answer: E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO…..
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Transactions | Units | Unit Cost | ||||
a. Inventory, Beginning | 3,000 | $ | 8 | |||
For the year: | ||||||
b. Purchase, March 5 | 9,500 | 9 | ||||
c. Purchase, September 19 | 5,000 | 11 | ||||
d. Sale, April 15 (sold for $29 per unit) | 4,000 | |||||
e. Sale, October 31 (sold for $31 per unit) | 8,000 | |||||
f. Operating expenses (excluding income tax expense), $250,000 | ||||||
Expert Answer
Income statement Using FIFO method | ||||||||
sales | 4000*29 | 364000 | ||||||
8000*31 | ||||||||
less cost of goods sold | ||||||||
(3000*8)+(1000*9) | 105000 | |||||||
8000*9 | ||||||||
gross profit | 259000 | |||||||
less operating profit | 250000 | |||||||
operating profit | 9000 | |||||||
Income statement Using LIFO method | FIFO | LIFO | WEIGHTED AVERAGE METHOD | |||||
sales | 4000*29 | 364000 | SALES | 364000 | 364000 | 364000 | ||
8000*31 | COST OF GOODS SOLD | 105000 | 126000 | 112800 | ||||
less cost of goods sold | GROSS PROFIT | 259000 | 238000 | 251200 | ||||
(4000*11) | 126000 | LESS OPERATING EXPENSES | 250000 | 250000 | 250000 | |||
(3000*9)+(5000*11) | OPERATING PROFIT | 9000 | -12000 | 1200 | ||||
gross profit | 238000 | |||||||
less operating profit | 250000 | |||||||
operating profit | -12000 | |||||||
Weighted average method | ||||||||
3000*8 | 24000 | |||||||
9500*9 | 85500 | |||||||
5000*11 | 55000 | |||||||
weighted average cost | 9.4 | |||||||
Income statement Using weighted average method | ||||||||
sales | 4000*29 | 364000 | ||||||
8000*31 | ||||||||
less cost of goods sold | ||||||||
12000*9.4 | 112800 | |||||||
gross profit | 251200 | |||||||
less operating profit | 250000 | |||||||
operating profit | 1200 |