Question & Answer: E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO…..

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.

 

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
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