Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted… 1 answer below »

Analyzing and Interpreting the Financial Statement Effects of Periodic FIFO, LIFO, and Weighted Average Cost Orion Iron Corp. 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, 2009.



Unit Cost

a. Inventory, December 31, 2008



For the year 2009:



b. Purchase, April 11



c. Purchase, June 1



d. Sale, May 1 (sold for $40 per unit)



e. Sale, July 3 (sold for $40 per unit)



f. Operating expenses (excluding income tax expense), $195,000




1. Calculate the number and cost of goods available for sale.

2. Calculate the number of units in ending inventory.

3. Compute the cost of ending inventory and cost of goods sold under ( a ) FIFO, ( b ) LIFO, and ( c ) weighted average cost.

4. Prepare an Income Statement that shows 2009 amounts for the FIFO method in one column, the LIFO method in another column, and the weighted average method in a final column. Include the following line items in the income statement: Sales, Cost of Goods Sold, Gross Profit, Operating Expenses, and Income from Operations.

5. Compare the Income from Operations and the ending inventory amounts that would be reported under the three methods. Explain the similarities and differences. 6. Which inventory costing method may be preferred by Orion Iron Corp. for income tax purposes? Explain.

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