E7-6 Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO

Question

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 applics 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 Unit Transactions Units Cost 250 $10 a. Inventory, Beginning For the year b. Purchase, April 11 c. Purchase, June 1 d. Sale, May 1 (sold for $45 per unit) e. Sale, July 3 (sold for $45 per unit) f. Operating expenses (excluding income tax expense), $18,800 600 400 250 12 12 1. Calculate the number and cost of goods available for sale Number of Goods Available for Sale units Cost of Goods Available for Sale 2. Calculate the number of units in ending inventory units

Explanation / Answer

1) Number of goods available for sale = (250+400+600) = 1250 units

Cost of goods available for sale = (1000*12+250*10) = 14500

2) Ending inventory = 1250-600 = 650 units

3)

4) Income statement :

6) LIFO gives minimize income taxes

Ending inventory Cost of goods sold FIFO 650*12=7800 14500-7800=6700 LIFO 250*10+400*12=7300 14500-7300 = 7200 Weighted average (14500/1250*650) = 7540 14500-7540 = 6960

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