Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, 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 Beginning inventory, January 1 220 $ 26 Transactions during the year: a. Purchase on account, March 2 310 28 b. Cash sale, April 1 ($42 each) (370) c. Purchase on account, June 30 270 32 d. Cash sale, August 1 ($42 each) (90) TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred. Required: Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round "Cost per Unit" to 2 decimal places.) a. Last-in, first-out. b. Weighted average cost. c. First-in, first-out. d. Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30. Of the four methods, which will result in the highest gross profit? Which will result in the lowest 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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Question

Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, 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
Beginning inventory, January 1	220	$ 26
Transactions during the year:
a. Purchase on account, March 2	310	28
b. Cash sale, April 1 ($42 each)	(370)
c. Purchase on account, June 30	270	32
d. Cash sale, August 1 ($42 each)	(90)

TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred.

Required:

Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods: (Round "Cost per Unit" to 2 decimal places.)
a. Last-in, first-out.
b. Weighted average cost.
c. First-in, first-out.
d. Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30.
Of the four methods, which will result in the highest gross profit? Which will result in the lowest income taxes?

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