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: Amount $2,500 Transactions Inventory, January 1, 2018 Sale, January 10 Purchase, January 12 Sale, January 17 Purchase, January 26 Units 500 (400) 600 (300) 160 3,600 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) Weighted- Average Cost FIFO (c) Specific Identification $ 0 $ 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 O Weighted average cost Specific identification 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.)

a. Record sales on account --> Jan. 10

b. Record cost of sales on goods sold on account --> Jan. 10

c. Record purchase of goods on account --> Jan. 12

d. Record sales on account --> Jan. 17

e. Record cost of sales on goods sold on account --> Jan. 17

f. Record purchase of goods on account --> Jan. 26

Answer 1

Calculation of Closing Inventory
Under Weighted Average cost method
	Beginning Inventory			Changes during month			Closing Inventory
	units	price per unit	total	units	Cost per unit	total	units	price per unit	total
Beginning	500	$                   5	$        2,500				500	$                   5	$        2,500
Sale	500	$                   5	$        2,500	-400	$                          5	$                 (2,000)	100	$                   5	$           500
Purchase	100	$                   5	$           500	600	$                          6	$                    3,600	700	$             5.86	$        4,100
Sale	700	$             5.86	$        4,100	-300	$                    5.86	$                 (1,757)	400	$             5.86	$        2,343
Purchase	400	$             5.86	$        2,343	160	$                          8	$                    1,280	560	$             6.47	$        3,623
						Total	560	$             6.47	$        3,623
Under FIFO method
	Beginning Inventory			Changes during month			Closing Inventory
	units	price per unit	total	units	Cost per unit	total	units	price per unit	total
Beginning	500	$                   5	$        2,500				500	$                   5	$        2,500
Sale	500	$                   5	$        2,500	-400	$                          5	$                 (2,000)	100	$                   5	$           500
Purchase	100	$                   5	$           500	600	$                          6	$                    3,600	100	$                   5	$           500
							600	$                   6	$        3,600
Sale	100	$                   5	$           500	-100	$                          5	$                     (500)
	600	$                   6	$        3,600	-200	$                          6	$                 (1,200)	400	$                   6	$        2,400
Purchase	400	$                   6	$        2,400	160	$                          8	$                    1,280	400	$                   6	$        2,400
							160	$                   8	$        1,280
						Total	560		$        3,680
Under Specific Identification method
	Beginning Inventory			Changes during month			Closing Inventory
	units	price per unit	total	units	Cost per unit	total	units	price per unit	total
Beginning	500	$                   5	$        2,500				500	$                   5	$        2,500
Sale	500	$                   5	$        2,500	-400	$                    5.00	$                 (2,000)	100	$                   5	$           500
Purchase	100	$                   5	$           500	600	$                    6.00	$                    3,600	100	$                   5	$           500
							600	$                   6	$        3,600
Sale	100	$                   5	$           500				100	$                   5	$           500
	600	$                   6	$        3,600	-300	$                    6.00	$                 (1,800)	300	$                   6	$        1,800
Purchase	100	$                   5	$           500	160	$                    8.00	$                    1,280	100	$                   5	$           500
	300	$                   6	$        1,800				300	$                   6	$        1,800
							160	$                   8	$        1,280
						Total	560		$        3,580

REGINA COMPANY
Partial Statement of Earnings
For the Month ended January 31, 2018
			(a)		(b)	(c )
			Weighted Average Cost		FIFO	Specific Identification
Sales (Units sold(700)*$18)			$     12,600		$                12,600	$                 12,600
Closing Inventory			$        3,623		$            3,680.00	$                    3,580
Less: Purchases			$        4,880		$            4,880.00	$                    4,880
Less: opening Inventory			$        2,500		$                  2,500	$                    2,500
Gross profit			$        8,843		$            8,900.00	$              8,800.00
(2a) Highest Pretax earning is under FIFO method
(2b) Lowest Tax expense would under Specific Identification Method, Because of the lowest pretax earnings
(2c) Most favourable method for cash flow is FIFO method. Because it got highest cash flows

3	Journal Entries
	Date	Particulars			Debit	Credit
	Jan-10	Accounts Receivables A/c Dr.			$7,200.00
		To Sales A/c				$7,200.00
	Jan-10	Cost of goods sold A/c Dr.			$2,000.00
		To Inventory A/c				$2,000.00
	Jan-12	Purchases A/c Dr.			$3,600.00
		To Accounts Payable A/c				$3,600.00
	Jan-17	Accounts Receivables A/c Dr.			$5,400.00
		To Sales A/c				$5,400.00
	Jan-17	Cost of goods sold A/c Dr.			$1,700.00
		To Inventory A/c				$1,700.00
	Jan-26	Purchases A/c Dr.			$1,280.00
		To Accounts Payable A/c				$1,280.00