ACCT20100 Chapter Notes - Chapter 7: Weighted Arithmetic Mean, Financial Statement
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E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted Average Cost [LO 7-3]
Orion Iron Corp. 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 | 350 | $ | 14 | |||
For the year: | ||||||
b. Purchase, April 11 | 950 | 12 | ||||
c. Purchase, June 1 | 700 | 15 | ||||
d. Sale, May 1 (sold for $42 per unit) | 350 | |||||
e. Sale, July 3 (sold for $42 per unit) | 610 | |||||
f. Operating expenses (excluding income tax expense), $18,000 | ||||||
Required: |
1. | Calculate the number and cost of goods available for sale. |
2. | Calculate the number of units in ending inventory. |
3. | Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.) |
4. | Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method. |
6. | Which inventory costing method minimizes income taxes? | ||||||
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Refer to the financial statements of American Eagle Outfitters given in Appendix B. (Fiscal year ending 2015)
Link: http://ezto-cf-media.mheducation.com/Media/Connect_Production/bne/accounting/libby_9e/Libby9e_AppB.pdf
Required:
1. How much inventory does the company hold at the end of the most recent year? (Enter your answer in thousands.)
2. Estimate the amount of merchandise that the company purchased during the current year. (Hint: Use the cost of goods sold equation.) (Enter your answer in thousands.)
3. What method does the company use to determine the cost of its inventory?
a. | FIFO |
b. | LIFO |
c. | Weighted Average |
4. Compute the inventory turnover ratio for the current year. (Round your intermediate calculations to the nearest whole dollar and your final answer to 2 decimal places.)