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 1,500 $ 22 For the year:
b. Purchase, March 5 7,500 23
c. Purchase, September 19 3,500 25
d. Sale, April 15 (sold for $67 per unit) 2,300
e. Sale, October 31 (sold for $70 per unit) 6,500
f. Operating expenses (excluding income tax expense), $402,000
Calculate the number and cost of goods available for sale.
Calculate the number of units in ending inventory.
Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost.
Prepare an income statement that shows the FIFO method, LIFO method, and weighted average method.

Answer 1

Answer:

(a) $6,200

(b) -$2,300

(c) $828

Explanation:

STEP 1:

Calculating Cost of Goods sold under required methods as follows;

FIFO Method:

April 15, Sale 2,300 units at $67 each, Cost of Goods Sold can be calculated as follows;

(1,500 x $22) + (800 x $23) = $51,400

October 31, Sale 6,500 units at $70 each, Cost of Goods Sold can be calculated as follows;

6,500 x $23 = $149,500

Total Cost of Goods Sold = $51,400 + $149,500 = $200,900

LIFO method:

April 15, Sale 2,300 units at $67 each, Cost of Goods Sold can be calculated as follows;

2,300 x $25 = $57,500

October 31, Sale 6,500 units at $70 each, Cost of Goods Sold can be calculated as follows;

(1,200 x $25) + (5,300 x $23) = $151,900

Total Cost of Goods Sold = $57,500 + $151,900 = $209,400

Weighted Average Cost Method:

Total Cost = (1,500 x $22) + (7,500 x $23) + (3,500 x $25) = $293,000

Total Units = 1,500 + 7,500 + 3,500 = 12,500

weighted average cost = $293,000 / 12,500 = 23.44 per unit.

April 15, Sale 2,300 units at $67 each, Cost of Goods Sold can be calculated as follows;

2,300 x $23.44 = $53,912

October 31, Sale 6,500 units at $70 each, Cost of Goods Sold can be calculated as follows;

6,500 x $23.44 = $152,360

Total Cost of Goods Sold = $53,912 + $152,360 = $206,272

STEP 2:

Calculating the Total sales $ amount as follows;

Total Sales = (2,300 x $67) + (6,500 x $70) = $609,100

STEP 3:

Preparing Income Statement under all the required methods;

(a) Income Statement under FIFO Method:

Sales                                                             $609,100

Less: Cost of Goods Sold                            $200,900

Gross Profit                                                   $408,200

Less: Operating expenses                           $402,000

Net Income before Income Tax                       $6,200

(b) Income Statement under LIFO Method:

Sales                                                             $609,100

Less: Cost of Goods Sold                            $209,400

Gross Profit                                                   $399,700

Less: Operating expenses                           $402,000

Net Loss before Income Tax                          -$2,300

(c) Income Statement under weighted average cost Method:

Sales                                                             $609,100

Less: Cost of Goods Sold                            $206,272

Gross Profit                                                   $402,828

Less: Operating expenses                           $402,000

Net Income before Income Tax                          $828