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. Unit Cost Units 140 $26 Transactions Beginning inventory, January 1 Transactions during the year: a. Purchase on account, March 2 b. Cash sale, April 1 $42 each) c. Purchase on account, June 30 d. Cash sale, August 1 ($42 each) 28 270 (290) 190 (65) 32 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: 1. 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. 2. Of the four methods, which will result in the highest gross profit? Which will result in the lowest income taxes?
** Please explain the calculations for the ones in red please !!!!!!!!!!!!!!

Answer 1

a) LIFO Periodic Units Cost per unit $ Total $ 140 26 3,640 $ $ 28 32 270 190 460 600 7,560 6,080 13,640 17,280 Beginning Inventory Purchases March 2 June 30 Total Purchases Goods Available for Sale Cost of goods sold Units from Beginning Inventory Units from March 2 Purchases Units from June 30 Purchases Total Cost of goods sold Ending Inventory 4 165 190 355 $ $ 28 32 ,620 6,080 10,700 6,580 245 Notes: Total Units sold Cash Sale, April 1 Cash Sale, August 1 Total Units sold 290 65 355 355 Under LIFO Method Goods bought first should be sold first. (Cost of goods sold) Total Units sold From June 30 Purchases (190) Balance From March 2 Purchases 165 Ending Inventory Goods Available for sale - Cost of goods sold

b) Weighted Average Method Units Cost per unit $ 26 Total $ 140 3,640 270 190 460 $ $ Beginning Inventory Purchases March 2 June 30 Total Purchases Goods Available for Sale Cost of goods sold Ending Inventory 28 32 7,560 6,080 13,640 17,280 10,224 7,056 600 355 $ 28.80 245 $

C) FIFO Periodic Units Cost per unit $ 26 Total $ 140 3,640 28 270 190 $ $ 32 7,560 6,080 13,640 17,280 460 600 Beginning Inventory Purchases March 2 June 30 Total Purchases Goods Available for Sale Cost of goods sold Units from Beginning Inventory Units from March 2 Purchases Units from June 30 Purchases Total Cost of goods sold Ending Inventory 26 140 215 $ $ 28 6 3,640 ,020 9,660 355 245 $ 7,620 Cost of goods sold Under LIFO Method Goods bought first should be sold first. (Cost of goods sold) Total Units sold 355 From Beginning Inventory (140) Balance From March 2 Purchases 215

d) Specific Identification (Periodic) Units Cost per unit $ Total $ 140 26 3,640 28 32 270 $ 190 $ 460 600 7,560 6,080 13,640 17,280 T Beginning Inventory Purchases March 2 June 30 Total Purchases Goods Available for Sale Cost of goods sold Units from Beginning Inventory Units from March 2 Purchases Units from June 30 Purchases Total Cost of goods sold Ending Inventory 261 28 58 $ 232 $ 65 $ 355 245 32 ,508 6,496 2,080 10,084 7,196 $ Cost of good sold Total Units sold From Beginning Inventory From March 2 Purchases Balance from June 30 Purchases 355 (58) (232) 65

2) FIFO will result a highest gross profit because cost of goods sold was lowest among all the four methods.

LIFO will result a lowest income tax because cost of goods sold was highest among all the four methods.