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? A. FIFO b. LIFO C. Weighted Average Cost
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? | ||||||
|
Related questions
| Periodic Inventory Method | |||||||||
| Better Bottles, Inc. uses a PERIODIC inventory system and has the following information available: | |||||||||
| Description | # of Units | Cost per Unit | Total Cost | ||||||
| Beginning inventory | 20 | $20.00 | $400 | ||||||
| Jan 5 sold | 15 | ||||||||
| Jan 15 purchase | 27 | $22.00 | 594 | ||||||
| Jan 18 sold | 21 | ||||||||
| Jan 20 purchase | 33 | $30.00 | 990 | ||||||
| Total goods available for sale | 80 | $1,984 | |||||||
| Total goods sold | 36 | ||||||||
| Required: | |||||||||
| 1 | Calculate both Cost of goods sold and Ending inventory using the Periodic FIFO Method. | ||||||||
| 2 | Calculate both Cost of good sold and Ending Inventory using Periodic LIFO Method. | ||||||||
| 3 | Use your calculations from 1-2 and complete the Income Statement. | ||||||||
| The company income tax rate: | 0.25 | ||||||||
| 1 | FIFO Cost of Goods Sold - PERIODIC | ||||||||
| Units Sold Taken From: | # of Units | Cost per Unit | Total Cost | ||||||
| Total Cost of Goods Sold FIFO | |||||||||
| FIFO Ending Inventory - PERIODIC | |||||||||
| Inventory Available | # of Units | Cost per Unit | Total Cost | ||||||
| Beginning inventory | |||||||||
| +Purchase | |||||||||
| +Purchase | |||||||||
| (Less Cost of Goods Sold) | |||||||||
| Ending Inventory FIFO | |||||||||
| 2 | LIFO Cost of Goods Sold - PERIODIC | ||||||||
| Units Sold Taken From: | # of Units | Cost per Unit | Total Cost | ||||||
| Total Cost of Goods Sold LIFO | |||||||||
| LIFO Ending Inventory - PERIODIC | |||||||||
| Inventory Available | # of Units | Cost per Unit | Total Cost | ||||||
| Beginning inventory | |||||||||
| +Purchase | |||||||||
| +Purchase | |||||||||
| (Less Cost of Goods Sold) | |||||||||
| Ending Inventory LIFO | |||||||||
| 3 | Income Statement - Periodic Inventory Method | ||||||||
| FIFO | LIFO | ||||||||
| Sales revenue, net | 25,000 | 25,000 | |||||||
| Cost of goods sold | |||||||||
| Gross profit | |||||||||
| Operating expenses | 8,000 | 8,000 | |||||||
| Operating income before tax | |||||||||
| Income tax expense | |||||||||
| Net income | |||||||||
|
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. |
Ā
| Transactions | Units | Unit CostĀ | ||||
| Ā a. Inventory, Beginning | Ā | 1,500 | Ā | $ | 28 | Ā |
| Ā Ā For the year: | Ā | Ā | Ā | Ā | Ā | Ā |
| Ā Ā b. Purchase, March 5 | Ā | 7,500 | Ā | Ā | 29 | Ā |
| Ā Ā c. Purchase, September 19 | Ā | 3,500 | Ā | Ā | 31 | Ā |
| Ā Ā d. Sale, April 15 (sold for $73 per unit) | Ā | 2,200 | Ā | Ā | Ā | Ā |
| Ā Ā e. Sale, October 31 (sold for $76 per unit) | Ā | 6,500 | Ā | Ā | Ā | Ā |
| Ā Ā f. Operating expenses (excluding income tax expense), $398,000 | Ā | Ā | Ā | Ā | ||
Ā
Prepare an income statement that shows the FIFO method.
Ā
