Question

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		$13
For the year:
b.	Purchase, April 11	9,100		11
c.	Purchase, June 1	8,100		14
d.	Sale, May 1 (sold for $41 per unit)	3,000
e.	Sale, July 3 (sold for $41 per unit)	6,100
f.	Operating expenses (excluding income tax expense), $198,000

1. Calculate the number and cost of goods available for sale.

Number of goods available for sale	20200	Units
Cost of goods available for sale	252500

2. Calculate the number of units in ending inventory.

Ending inventory

11100

Units

3. Compute the cost of ending inventory and cost of goods sold under (a) FIFO and (b) weighted average cost

	Ending Inventory	Cost of goods sold
FIFO
Weighted average

4. Prepare an income statement that shows amounts for the FIFO method in one column and for the weighted average method in another column. Include the following line items in the income statement: Sales, Cost of Goods Sold, Gross Profit, Operating Expenses, and Income from Operations.

	FIFO	Weighted average
Sales revenue
Cost of goods sold
Operating expenses
Income from operations

5. Which inventory costing method may be preferred by Scoresby Inc. for income tax purposes?

• Weighted average

• FIFO

Answer 1