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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.

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. Units 1,500 Unit Cost $31 32 Transactions a. Inventory, Beginning For the year: b. Purchase, March 5 c. Purchase, September 19 d. Sale, April 15 (sold for $76 per unit) e. Sale, October 31 (sold for $79 per unit) f. Operating expenses (excluding income tax expense), $398,000 34 7,500 3,500 2,200 6,500 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?

Answer 1

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Scoresby Inc.	Answer 3
Periodic FIFO
Date	Cost of Goods available for sale			Cost of Goods sold			Inventory Balance
	No. of Units	Cost per unit	Amount	No. of Units	Cost per unit	Cost of Goods sold	No. of Units	Cost per unit	Inventory Balance
1-Jan	1,500.00	31.00	46,500.00	1,500.00	31.00	46,500.00	-	31.00	-
5-Mar	7,500.00	32.00	240,000.00	7,200.00	32.00	230,400.00	300.00	32.00	9,600.00
19-Sep	3,500.00	34.00	119,000.00				3,500.00	34.00	119,000.00
Total	12,500.00		405,500.00	8,700.00		276,900.00	3,800.00		128,600.00
So ending Inventory Balance as per FIFO is $ 128,600.
So ending Cost of Goods sold as per FIFO is $ 276,900.
Periodic LIFO
Date	Cost of Goods available for sale			Cost of Goods sold			Inventory Balance
	No. of Units	Cost per unit	Amount	No. of Units	Cost per unit	Cost of Goods sold	No. of Units	Cost per unit	Inventory Balance
1-Jan	1,500.00	31.00	46,500.00				1,500.00	31.00	46,500.00
5-Mar	7,500.00	32.00	240,000.00	5,200.00	32.00	166,400.00	2,300.00	32.00	73,600.00
19-Sep	3,500.00	34.00	119,000.00	3,500.00	34.00	119,000.00	-	34.00	-
Total	12,500.00		405,500.00	8,700.00		285,400.00	3,800.00		120,100.00
So ending Inventory Balance as per LIFO is $ 120,100.
So ending Cost of Goods sold as per LIFO is $ 285,400.
Periodic Weighted Average
Date	No. of Units	Cost per unit	Amount
1-Jan	1,500.00	31.00	46,500.00
5-Mar	7,500.00	32.00	240,000.00
19-Sep	3,500.00	34.00	119,000.00
Total	12,500.00		405,500.00
Average Cost per unit		32.44		This is Total cost/ Total Units
Units sold	8,700.00		282,228.00	This is 8,700 units * $ 32.44.
Ending Inventory	3,800.00		123,272.00	This is 3,800 units * $ 32.44.
So ending Inventory Balance as per Weighted Average is $ 123,272.
So ending Cost of Goods sold as per Weighted Average is $ 282,228.
Answer 4
Calculation of sales value
Date	Units Sold	Price	Amount
15-Apr	2,200.00	76.00	167,200.00
31-Oct	6,500.00	79.00	513,500.00
Total Sales			680,700.00
Income Statement	FIFO	LIFO	Weighted Average
Sales	680,700.00	680,700.00	680,700.00
Cost of Goods sold	276,900.00	285,400.00	282,228.00
Gross Profit	403,800.00	395,300.00	398,472.00
Operating Expense	398,000.00	398,000.00	398,000.00
Operating Income	5,800.00	(2,700.00)	472.00