Question

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

Answer 1

Req 1
	Cost of Goods Available
DATE	UNITS	RATE	AMOUNT $
Balance Oct1	350	14	4900
Purchasse
11-Apr	950	12	11400
11-Jun	700	15	10500
TOTAL	2000	13.4	26800
Req 2:
Number of units of Ending inventory (2000-960): 1040 units
Req 3
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	350	14	4900	350	14	4900
Purchasse
11-Apr	950	12	11400	610	12	7320	340	12	4080
11-Jun	700	15	10500				700	15	10500
TOTAL	2000		26800	960		12220	1040		14580
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	350	14	4900				350	14	4900
Purchasse
11-Apr	950	12	11400	260	12	3120	690	12	8280
11-Jun	700	15	10500	700	15	10500
TOTAL	2000		26800	960		13620	1040		13180
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC WEIGHTED AVERAGE METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	350	14	4900
Purchasse
11-Apr	950	12	11400
11-Jun	700	15	10500
TOTAL	2000	13.4	26800	960	13.4	12864	1040	13.4	13936
Req 4:
Income Statement
				FIFO	LIFO	Average
Sales revenue (960 units @ 42)				40320	40320	40320
Less: Cost of Goods sold				12220	13620	12864
Gross margin				28100	26700	27456
Less: Operating expense				18000	18000	18000
Net income				10100	8700	9456
Req 5:
LIFO, minimizes income tax