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.

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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
	(30008)+(10009)	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
	(30009)+(500011)		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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