Concept Introduction:
Income Statement:
Income statement is a financial summary about company's revenues, expenses,
Periodic Inventory System:
It updates the closing inventory in the ledger after the physical count is done.
Last in first out (LIFO):
It is the
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
Weighted Average:
It is the inventory valuation in which total value of inventory is divided by the total inventory.
To prepare:
Comparative Income statement using three methods when a company uses periodic inventory system.

Answer to Problem 8APSA
Particulars | FIFO | LIFO | Weighted Average |
Sales | $200,000 | $200,000 | $200,000 |
Less: Cost of goods sold | ($78,000) | ($84,700) | ($81,340) |
Gross profit | $122,000 | $115,300 | $118,660 |
Less: Expenses | ($20,000) | ($20,000) | ($20,000) |
Income before taxes | $102,000 | $95,300 | $98,660 |
Income tax expense(40%) | ($40,800) | ($38,120) | ($39,464) |
Net Income | $61,200 | $57,180 | $59,196 |
Explanation of Solution
Valuation of Closing stock is done as:
Under FIFO:
Under LIFO:
Under weighted average:
Price in weighted average is calculated as:
Cost of goods sold is calculated as follows-
Particulars | FIFO | LIFO | Weighted Average |
Sales | $122,000 | $122,000 | $122,000 |
Less: Closing stock | $44,000 | $37,300 | $40,660 |
Cost of goods sold | $78,000 | $84,700 | $81,340 |
Calculation of Net Income is as follows-FIFO-
LIFO-
Weighted Average-
Conclusion-
Thus, Income statement is prepared.
Concept Introduction:
Last in first out (LIFO):
It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
Weighted Average:
It is the inventory valuation in which total value of inventory is divided by the total inventory.
To Explain:
To explain the changes in financial results by using inventory costing methods.

Answer to Problem 8APSA
As the purchase price of the inventory decresaes, the closing stock will be lower in case of FIFO method of inventory costing. The decrease in closing stockincreases cost of goods sold. The more cost of goods sold decreases gross profit under FIFO than LIFO. So, the net income will be lower under FIFO costing method.
Explanation of Solution
The requirement is explained in the answer.
Concept Introduction:
Last in first out (LIFO):
It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
To Explain:
The advantages and disadvantages of LIFO and FIFO method.

Answer to Problem 8APSA
Particulars | FIFO | LIFO |
Advantages | It assigns the lower amount to cost of goods sold. | It assigns the highest amount to cost of goods sold. |
Disadvantages | The net income is higher. | The net income is lower. |
Explanation of Solution
The requirement is explained in the answer.
Want to see more full solutions like this?
Chapter 6 Solutions
FUNDAMENTAL ACCOUNTING PRINCIPLES
- ABC Manufacturing has the following cost data: Direct Labor: $220,000 • Direct Materials Used: $175,000 • Total Manufacturing Overhead: $215,000 Beginning Work in Process: $30,000 Compute Total Manufacturing Costs and Total Cost of Work in Process.arrow_forwardWhat is the contribution margin per unit and the contribution margin ratio of this financial accounting question?arrow_forwardFind the break even point. Accountingarrow_forward
- XYZ Corp. had total sales of $1,200 million for fiscal year 2022. The company's gross profit ratio for that year was 40%. Calculate: Gross Profit Cost of Goods Sold (COGS)arrow_forwardMontclair Textiles uses the weighted average method for inventory costs and had the following information available for the year: • Beginning Work in Process (45% complete, $4,100) = 500 units Ending Inventory of Work in Process (80% complete) = 570 units Total units started during the year = 5,600 units What is the number of units transferred to finished goods during the year?arrow_forwardHorizon Inc. had the following transactions during the month of July 2020: Cash received from a bank loan was $50,000. Dividends of $15,000 were paid to stockholders in cash. Revenues earned and received in cash amounted to $120,000. Expenses incurred and paid were $85,000. What amount of net income will be reported on the income statement for July? A) $120,000 B) $85,000 C) $35,000 D) $15,000arrow_forward
- Please answer the following requirements on these accounting questionarrow_forwardfinancial accounting questionarrow_forwardLambert Manufacturing uses a predetermined overhead rate of $20.50 per direct labor hour. This predetermined rate was based on a cost formula that estimates $252,500 of total manufacturing overhead for an estimated activity level of 12,300 direct labor hours. The company incurred actual total manufacturing overhead costs of $246,000 and 11,700 total direct labor hours during the period. Determine the amount of underapplied or overapplied manufacturing overhead for the period.arrow_forward
- General accountingarrow_forwardYour firm has net income of $420 on total sales of $1,600. Costs are $900, and depreciation is $150. The tax rate is 28%. The firm does not have interest expenses. What is the operating cash flow (OCF)? A) $570 B) $560 C) $420 D) $600arrow_forwardAt the end of the year, Tech Solutions Inc. reported total assets of $200,000 and total liabilities of $85,000. What is the total equity for Tech Solutions Inc. at year-end? A) $285,000 B) $115,000 C) $85,000 D) $200,000arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





