Scrappers Supplies tracks the number of units purchased and sold throughout each

Question

Scrappers Supplies tracks the number of units purchased and sold throughout each accounting period but applies its inventory costing method at the end of each period, 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. Transactions Beginning inventory, January 1 Transactions during the year: a. Purchase on account, March 2 b. Cash sale, April 1 ($46 each) c. Purchase on account, June 30 d. Cash sale, August 1 ($46 each) 200 $30 300 32 (350) 250 36 (50) TIP: Although the purchases and sales are listed in chronological order, Scrappers determines the cost of goods sold after all of the purchases have occurred

Explanation / Answer

a. Last-in, first-out

b. Weighted Average Cost

c. First-in, First-out

d. Specific Identification

2-a. Answer = First-in, First-out

Gross profit = Sales - Cost of goods sold

LIFO = $18,400 - $13,800 = $4,600

Weighted Average Cost = $18,400 - $13,120 = $5,280

FIFO = $18,400 - $12,400 = $6,000

Specific Identification = $18,400 - $12,860 =$5,540

2-b. Answer = Last-in, first-out

LIFO will result in the lowest income taxes because In LIFO gross profit is minimum.

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LIFO (Periodic) Units Cost per unit Total Beginning Inventory 200 $30 $6,000 Purchases March 2 300 $32 $9,600 June 30 250 $36 $9,000 Total Purchases 550 $18,600 Goods Available for Sale 750 $24,600 Cost of Goods Sold Units from Beginning Inventory 0 $30 $0 Units from March 2 Purchase 150 $32 $4,800 Units from June 30 Purchase 250 $36 $9,000 Total Cost of Goods Sold 400 $13,800 Ending Inventory 350 $10,800

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