Question

ABC Company employs a periodic inventory system and sells its inventory to customers for $23 per unit. ABC Company reported the following inventory information for the month of May:

May 1 Beginning inventory 4,200 units @ $9 cost per unit

May 6 Purchased 2,000 units @ $12 cost per unit

May 8 Sold 3,000 units

May 13 Purchased 2,500 units @ $6 cost per unit

May 18 Sold 1,900 units

May 21 Purchased 4,000 units @ $8 cost per unit

May 28 Sold 2,200 units

May 30 Purchased 2,300 units @ $17 cost per unit

ABC Company reported operating expenses of $26,100 for May and they had a tax rate of 34%.

A)Calculate the dollar amount of ending inventory shown on ABC Company's May 31 balance sheet using the FIFO method.

B)Calculate the amount of gross profit shown on ABC Company's income statement for May using the weighted average method.

C)Calculate the amount of net income shown on ABC Company's income statement for May using the LIFO method.

Answer 1

	Units	Unit cost	Total
1-May	4200	9	37800
6-May	2000	12	24000
13-May	2500	6	15000
21-May	4000	8	32000
30-May	2300	17	39100
Total	15000		147900
Average cost = 147900/15000= $9.86
Units sold = 3000+1900+2200= 7100
Gross sales = 7100*23= $163300
Ending inventory units = 15000-7100= 7900 units
A
Dollar amount of ending inventory using the FIFO method = (2300*17)+(4000*8)+(1600*6)= $80700
B
Cost of goods sold using weighted average method = 7100*9.86= $70006
Gross profit using the weighted average method = Sales-Cost of goods sold = 163300-70006= $93294
C
Cost of goods sold using LIFO = (2300*17)+(4000*8)+(800*6)= $75900
Net income = Sales-Cost of goods sold-Operating expenses-Income tax expense
Net income under LIFO method = (163300-75900-26100)*(1-0.34)= $40458