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 Units Unit Cost
Beginning inventory, January 1 240 $21
Transactions during the year:
A. Purchase on account, March 2 320 23
B. Cash sale, April 1 ($37 each) (390)
C. Purchase on account, June 30 290 27
D. Cash sale, August 1 ($37 each) (95)
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.
Required:
1. Compute the cost of goods available for sale, cost of ending inventory, and cost of goods sold at December 31 under each of the following inventory costing methods:
A. Last-in, first-out.
B. Weighted average cost.
C. First-in, first-out.
D. Specific identification, assuming that the April 1 sale was selected one-fifth from the beginning inventory and four-fifths from the purchase of March 2. Assume that the sale of August 1 was selected from the purchase of June 30.
2A. Of the four methods, which will result in the highest gross profit?
Last-in, first-out
Weighted average cost
First-in, first-out
Specific identification
2B. Of the four methods, which will result in the lowest income taxes?
Last-in, first-out
Weighted average cost
First-in, first-out
Specific identification