E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO 7-3] 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 $ 28 For the year: b. Purchase, March 5 7,500 29 c. Purchase, September 19 3,500 31 d. Sale, April 15 (sold for $73 per unit) 2,200 e. Sale, October 31 (sold for $76 per unit) 6,500 f. Operating expenses (excluding income tax expense), $398,000 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. 4. Prepare an income statement that shows the FIFO method, LIFO method and weighted average method. 6. Which inventory costing method minimizes income taxes?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO 7-3]

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	$	28
For the year:
b. Purchase, March 5		7,500		29
c. Purchase, September 19		3,500		31
d. Sale, April 15 (sold for $73 per unit)		2,200
e. Sale, October 31 (sold for $76 per unit)		6,500
f. Operating expenses (excluding income tax expense), $398,000

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.
4. Prepare an income statement that shows the FIFO method, LIFO method and weighted average method.
6. Which inventory costing method minimizes income taxes?

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