Problem 6-4A The management of Gresa Inc. is reevaluating the appropriateness of

Question

Problem 6-4A The management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help determining the results of operations for 2017 If either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data: Beginning (10,000 units) Ending (12,000 units) $1,273,000 671,000 $20,000 Total net sales (268,000 units) Total cost of goods purchased (270,000 units) Purchases were made quarterly as follows. Units Unit Cost Cost 70,000 $2.30 $161,000 60,000 2.40 144,000 60,000 2.50 150,000 480,000 2.70216,000 270,000 $671,000

Explanation / Answer

FIFO LIFO Sales Revenue $ 12,73,000 $ 12,73,000 Cost of goods sold Beginning inventory $       20,000 $       20,000 Cost of goods purchased $   6,71,000 $   6,71,000 Cost of goods available for sale $   6,91,000 $   6,91,000 Less: Ending Inventory $       32,400 $       24,600 Cost of goods sold $   6,58,600 $   6,66,400 Gross profit / (loss) $   6,14,400 $   6,06,600 Operating expense $   1,50,000 $   1,50,000 Income before income taxes $   4,64,400 $   4,56,600 Income tax expense @ 40% $   1,85,760 $   1,82,640 Net Income / (loss) $   2,78,640 $   2,73,960 1 FIFO 2 LIFO 3 FIFO 4 Additional cash under LIFO $3,120 ( difference in income tax expense $1,85,760 - $1,82,640) 5 Lower than FIFO Higher than LIFO Workings: Ending Inventory Cost of goods available for sale Cost of goods sold - Periodic FIFO Ending Inventory - Periodic FIFO FIFO # of units    (A) Cost per unit Cost of goods available for sale # of units sold               (B) Cost per unit Cost of goods sold # of units in ending inventory      (A) - (B) Cost per unit Ending Inventory Beginning Inventory           10,000 $            2.00 $     20,000      10,000 $       2.00         20,000                -   $       2.00                -   Purchases:                -   Quater 1           70,000 $            2.30 $ 1,61,000      70,000 $       2.30     1,61,000                -   $       2.30                -   Quater 2           60,000 $            2.40 $ 1,44,000      60,000 $       2.40     1,44,000                -   $       2.40                -   Quater 3           60,000 $            2.50 $ 1,50,000      60,000 $       2.50     1,50,000                -   $       2.50                -   Quater 4           80,000 $            2.70 $ 2,16,000      68,000 $       2.70     1,83,600      12,000 $       2.70      32,400        2,80,000 $ 6,91,000 2,68,000 $ 6,58,600 $ 32,400 Cost of goods available for sale Cost of goods sold - Periodic FIFO Ending Inventory - Periodic FIFO LIFO # of units    (A) Cost per unit Cost of goods available for sale # of units sold               (B) Cost per unit Cost of goods sold # of units in ending inventory      (A) - (B) Cost per unit Ending Inventory Beginning Inventory           10,000 $            2.00 $     20,000                -   $       2.00                  -        10,000 $       2.00      20,000 Purchases: Quater 1           70,000 $            2.30 $ 1,61,000      68,000 $       2.30     1,56,400         2,000 $       2.30         4,600 Quater 2           60,000 $            2.40 $ 1,44,000      60,000 $       2.40     1,44,000                -   $       2.40                -   Quater 3           60,000 $            2.50 $ 1,50,000      60,000 $       2.50     1,50,000                -   $       2.50                -   Quater 4           80,000 $            2.70 $ 2,16,000      80,000 $       2.70     2,16,000                -   $       2.70                -          2,80,000 $ 6,91,000 2,68,000 $ 6,66,400 $ 24,600

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