Question

E7-6: I only need required 1 & 4

nterpreting Cost of Sales and Inventory 7 Reporting and Interpreting 401 CHAPTER 7 A Pretax Earnings or (Loss) 1L072,73 Average Cost Methods rpreting the Financial Statement Effects of the FIFO and Weiglede Lunar Company uses a perpetual invento 9 uses a perpetual inventory system. The company's accounting records provide following information for Product 2: Transactions Units Unit Cost a. Inventory, December 31, 2016 3,000 $12 For the year 2017: b. Purchase, April 11 9,000 c. Sale, May 1 ($30 each) 5,000 d. Purchase, June 1 e. Sale, July 3 ($30 each) 6,000 f. Operating expenses (excluding income tax expense). $85.000 100 (100) 10 8.000 13 -ach of Required: 1. Prepare a statement of earnings for 2017, through pretax earnings, showing the detailed computation of cost of sales for two cases: a. Case A-FIFO b. Case B–Weighted average For each case, show the computation of the ending inventory. (Hint: Set up adjacent columns, one for each case.) 2. Compare the pretax earnings and the ending inventory amounts between the two cases. Explain the similarities and differences. 3. Which inventory costing method may be preferred for income tax purposes? Explain. 4. Prepare journal entries to record transactions (6) through (e), as well as the cost of sales at December 31, 2017, assuming that Lunar uses FIFO for inventory costing. 1L07-2,7-3 E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO and Weighted Average Cost Methods L'autoru sustem. At December 31, 2018, the company's accounting

Answer 1

Requrement a Case A RIRO. Cost of sales. Sale - 5000 unit Cost 3000x12+ 2000XLO $ 5600 Sale cost. 6ooo unit Ooo @ 10 $60000 Total cost of sales = $ 116000 Ending inventory 1000x10t 8ooox B E $114000 Case B – WAM Beg anu & Purchase sola Purchase sold. 3000 9000 6ooo 6000 6ooo $.12 110 $10.5 $13 $11.83 36000 90000 (52500) & 104000 ($71000) WAC $12 $10.5 $10.5 $11.83. $11.83 Cost of sales 152500 + $71000 = $123500 Ending inventory. 9000 Xkl1,83 = $106502

Subject sales. (-) Statement of eaming RIFO $ 330000 $116000) cos Gros Proft $214000 operating espere 285000 qoou WAM $330000 & 1123500) $206500 $850oo. 2150o las Bofit Requue y Jeumal entries CEIRO) (b) Inventory $90000 - Cash $90000 res Cash $ 150ooo Sales $150oo . Cos $56000 Inventary. $53000 (d) Inuenhay $104000 Cash 4204000 (e) Cash $180000 sales cos 60000 $ 60000 +120000 Inuentay