question archive 7-56 Comparison of Inventory Methods (Alternates are 7-67 and 7-69
7-56 Comparison of Inventory Methods (Alternates are 7-67 and 7-69
Subject:AccountingPrice: Bought3
7-56 Comparison of Inventory Methods
(Alternates are 7-67 and 7-69.) Contractor Supply Company is a wholesaler for commercial builders. The company uses a periodic inventory system. The data concerning Kemtone cooktops for the year 20X8 follow:
Units Purchases Units Sold Balance
December 31, 20X7
110
@
$
50
=
$
5
,
500
110
@
$
50
=
$
5
,
500
February 10, 20X8
80
@
$
60
=
80
@
$
60
=
$ 4,800
April 14 60
May 9
120
@
$
70
=
120
@
$
70
=
$ 8,400
July 14 120
October 21
100
@
$
80
=
100
@
$
80
=
$ 8,000
November 12 80
Total 300 $21,200 260
December 31, 20X8 150 @ ?
The sales during 20X8 were made at the following selling prices:
60 units
@
$
90
=
@
$
90
=
$ 5,400
120 units
@
100
=
@
100
=
12,000
80 units
@
110
=
@
110
=
8,800
260 $26,200
Prepare a comparative statement of gross profit for the year ended December 31, 20X8, using FIFO, LIFO, and average cost inventory methods. Remember that when average cost is used with the periodic inventory system we refer to it as the weighted-average method.
By how much would income taxes differ if Contractor Supply Company had used LIFO instead of FIFO for Kemtone cooktops? Assume a 40% income tax rate.
7-57 Effects of Late Purchases
(Alternates are 7-68 and 7-70.) Refer to the preceding problem. Suppose 100 extra units had been acquired on December 30, 20X8, for $80 each, a total of $8,000. How would net income and income taxes have been affected under FIFO and under LIFO? Show a tabulated comparison.
