Question

At the end of January 2018, the records of Regina Company showed the following for a particular item that sold at $18 per unit. Assume that all sales and purchases are on account: Transactions Units Amount $2,500 Inventory, January 1, 2018 Sale, January 10 Purchase, January 12 Sale, January 17 Purchase, January 26 500 (400) 600 3,600 (300) 160 1,280 Required: 1. Assuming the use of a perpetual inventory system, prepare a summarized statement through gross profit on sales under each of the following inventory costing methods: (a) weighted-average cost, (b) FIFO, and (c) specific identification, assuming that the company is permitted to use this method. For specific identification, assume that the first sale was out of the beginning inventory and the second sale was out of the January 12 purchase. (Round your intermediate calculations to 2 decimal places and final answers to nearest whole dollar amount.) REGINA COMPANY Partial Statement of Earnings For the Month Ended January 31, 2018 (a) (b) (c) Weighted Average Cost Specific Identification FIFO $ 0 $ 0 2a. Which method would result in the highest pretax earnings? O FIFO O Weighted-average cost O Specific identification 2b. Which method would result in the lowest income tax expense? O Weighted-average cost O FIFO O Specific identification 2c. Which method would result in the most favourable cash flow? O Weighted-average cost O Specific identification O FIFO 3. Prepare journal entries to record the transactions that occurred in January 2018, assuming that FIFO is used for inventory costing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet K 1 2 3 4 5 6 Record sales on account. Note: Enter debits before credits. Date General Journal Debit Credit January 10 Clear entry Record entry View general journal

Answer 1

Klean erasing FIFO Purchases unit cost Qtr sold I told Dak. Oh Putehase soo Sole Price fant sales Purchases Hotel cost 2,500 closing mentol huent cost pel fel In ist total mortas 2500 Soo 7,200 100 Soo (500-400) 100 500 600 3600 Sp400 2400 ( 400 100-1007 6c0-200 160 & 1280 40a 2400 1280 160 3,680 method strut showing gros profil under FIFO Purchases 7,380 sales 12,600 Closing Stock 13,690 Grass proft Cold) 8,900 16,280 16,280

echased Pochases unit cost Purchases total cost Keighled Aretope cost of goods Sold unit cost cost methods cost of goods sold-total at hentory Qty. hventory chit cost hventor total cat - l. 5 25.00 500 2500 18 100 nool 7,200 SOD (500-400) o un boo 6 T 3600 100 soo 600_ 3600 obal 100 und 5.86 - 300 Tann 4,1o SLOO 700 units 5.86 4,100 1280 Jan 26 1608 700 5-86 4,100 1280 6.26 5,380 strut showing profit under weight Aug method Amado Particulars Purchases Amound 9380 Particulars sales Clostock 12,600 5,380 Cirous proht 10600 77,980 17980

Identification CLIFO). chord Rarchases Ruschases hotel cost 1 Spearfic Solee price Per unt masa unit cost totd sales Closita hugton mootor Hal hentere 500 500 5 2,500 soo 2500 7,200 (00 500 600 6 3,600 100 SOO 3,600 200 18 5,400 Sildo Boo-3000 6 1800 Soo loo don 26 160 1 8 1280 300 ( m 100 500 (60 1280 $$80 Start Starting gross proft under cIfo method 12,600 Purchases alaulaton of scles closing stock 2380 / 8800 3580 Cwess profit cold T 16, 180 16 ko
2a. FIFO would provide EPS because of cost of goods sold being lower and the profit being higher.

Therefore FIFO Would result in a higher tax income.

2b.specific identification would have lower income tax expense because the gross profit is smaller.

2c. FIFO produces most favourable cash flow. Even though the taxes are higher, this method creates enough in sales to offset the higher income tax.

So, FIFO method would provide the more favourable cash flow.

Jan 10 Sale entry

Accounts receivable. 7200(400*18)

Sales. 7200