# Answered Essay: E7-7 Analyzing and Interpreting the Financial Statement Effects of FIFO, LIFO, and Weighted Average Cost [LO

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

 Scoresby Inc. 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.

 Transactions Units Unit Cost a. Inventory, Beginning 3,000 \$ 8 For the year: b. Purchase, March 5 9,500 9 c. Purchase, September 19 5,000 11 d. Sale, April 15 (sold for \$29 per unit) 4,000 e. Sale, October 31 (sold for \$31 per unit) 8,000 f. Operating expenses (excluding income tax expense), \$250,000

 Income statement Using FIFO method sales 4000*29 364000 8000*31 less cost of goods sold (3000*8)+(1000*9) 105000 8000*9 gross profit 259000 less operating profit 250000 operating profit 9000 Income statement Using LIFO method FIFO LIFO WEIGHTED AVERAGE METHOD sales 4000*29 364000 SALES 364000 364000 364000 8000*31 COST OF GOODS SOLD 105000 126000 112800 less cost of goods sold GROSS PROFIT 259000 238000 251200 (4000*11) 126000 LESS OPERATING EXPENSES 250000 250000 250000 (3000*9)+(5000*11) OPERATING PROFIT 9000 -12000 1200 gross profit 238000 less operating profit 250000 operating profit -12000 Weighted average method 3000*8 24000 9500*9 85500 5000*11 55000 weighted average cost 9.4 Income statement Using weighted average method sales 4000*29 364000 8000*31 less cost of goods sold 12000*9.4 112800 gross profit 251200 less operating profit 250000 operating profit 1200
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