E76 Analyzing and Interpreting the Financial Statement Effec

E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted Average Cost [LO 7-3]

Orion Iron Corp. 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.

       

       

Compute the cost of ending inventory and cost of goods sold under (a) FIFO, (b) LIFO, and (c) weighted average cost. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

       

Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

       

Orion Iron Corp. 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.

Solution

Req 1 Cost of Goods Available DATE UNITS RATE AMOUNT $ Balance Oct1 350 14 4900 Purchasse 11-Apr 950 12 11400 11-Jun 700 15 10500 TOTAL 2000 13.4 26800 Req 2: Number of units of Ending inventory (2000-960): 1040 units Req 3 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 350 14 4900 350 14 4900 Purchasse 11-Apr 950 12 11400 610 12 7320 340 12 4080 11-Jun 700 15 10500 700 15 10500 TOTAL 2000 26800 960 12220 1040 14580 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 350 14 4900 350 14 4900 Purchasse 11-Apr 950 12 11400 260 12 3120 690 12 8280 11-Jun 700 15 10500 700 15 10500 TOTAL 2000 26800 960 13620 1040 13180 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC WEIGHTED AVERAGE METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 350 14 4900 Purchasse 11-Apr 950 12 11400 11-Jun 700 15 10500 TOTAL 2000 13.4 26800 960 13.4 12864 1040 13.4 13936 Req 4: Income Statement FIFO LIFO Average Sales revenue (960 units @ 42) 40320 40320 40320 Less: Cost of Goods sold 12220 13620 12864 Gross margin 28100 26700 27456 Less: Operating expense 18000 18000 18000 Net income 10100 8700 9456 Req 5: LIFO, minimizes income tax