Homework Week 4 Chapter 06 problems Save Score 0 of 1 pt 4

Homework: Week 4 - Chapter 06 problems Save Score: 0 of 1 pt 4 of 6 (0 complete) HW Score: 0%, 0 of 6 p P6-32A (similar to) Question Help Tomorrows Electronic Center began July with 90 units of merchandise inventory that cost $60 each. During July, the store made the following purchases: EEB (Click the icon to view the purchases.) Tomorrows uses the periodic inventory system, and the physical count at July 31 indicates that 140 units of merchandise inventory are on hand Read the requirements Requirement 1. Determine the ending merchandise inventory and cost of goods sold amounts for the July financial statements using the FIFO, LIFO, and weighted-average inventory costing methods FIFO Ending inventory Cost of goods sold

Solution

Answer to Requirement 1.

Cost of Goods available for Sale = Beginning Inventory + Cost of Purchases
Beginning Inventory = 90 Units * $60
Beginning Inventory = $5,400

Cost of Purchases = (60 Units * $80) + (70 Units * $82) + (60 Units * $89)
Cost of Purchases = $4,800 + $5,740 + $5,340
Cost of Purchases = $15,880

Cost of Goods available for Sale = $5,400 + $15,880
Cost of Goods available for Sale = $21,280

FIFO Method:
Units Sold = Units available for Sale – Units in Hand
Units available for Sale = 90 + 60 + 70 + 60 = 280 Units
Units Sold = 280 units – 140 units = 140 units

Cost of Goods Sold = (90 Units * $60) + (50 units * $80)
Cost of Goods Sold = $5,400 + $4,000
Cost of Goods Sold = $9,400

Ending Inventory = Cost of Goods available for Sale – Cost of Goods sold
Ending Inventory = $21,280 - $9,400
Ending Inventory = $11,880

LIFO Method:
Units Sold = Units available for Sale – Units in Hand
Units available for Sale = 90 + 60 + 70 + 60 = 280 Units
Units Sold = 280 units – 140 units = 140 units

Cost of Goods Sold = (60 Units * $89) + (70 units * $82) + (10 * $80)
Cost of Goods Sold = $5,340 + $5,740 + $800
Cost of Goods Sold = $11,880

Ending Inventory = Cost of Goods available for Sale – Cost of Goods sold
Ending Inventory = $21,280 - $11,880
Ending Inventory = $9,400

Weighted Average Inventory Method:
Units Sold = Units available for Sale – Units in Hand
Units available for Sale = 90 + 60 + 70 + 60 = 280 Units
Units Sold = 280 units – 140 units = 140 units

Weighted Average Cost per Unit = Cost of goods available for Sale / units available for sale
Weighted Average Cost per Unit = 21,280 / 280
Weighted Average Cost per Unit = $76

Cost of Goods Sold = 140 units * $76
Cost of Goods Sold = $10,640

Ending Inventory = Cost of Goods available for Sale – Cost of Goods sold
Ending Inventory = $21,280 - $10,640
Ending Inventory = $10,640

Answer to Requirement 2.

FIFO Method:
Gross Profit = Sales – Cost of Goods sold
Gross Profit = $24,000 - $9,400
Gross Profit = $14,600

LIFO Method:
Gross Profit = Sales – Cost of Goods sold
Gross Profit = $24,000 - $11,880
Gross Profit = $12,120

Weighted Average Inventory Method:
Gross Profit = Sales – Cost of Goods sold
Gross Profit = $24,000 - $10,640
Gross Profit = $10,640

Answer to Requirement 3.

Weighted Average Inventory method will result in lowest income tax expense, as it has lowest Gross Profit.

FIFO Inventory method will result in lowest income tax expense, as it has lowest Gross Profit.