Chapter 7, Problem 56P Bookmarlk Show all steps ON Problem Contractor Supply Com
ID: 2412093 • Letter: C
Question
Chapter 7, Problem 56P Bookmarlk Show all steps ON Problem 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 Sol Balance December 31. 20X7 February 10, 20X8 April 14 May 9 July 14 October 21 November 12 Total December 31, 20X8 110$50- $5,500 80 $60 4.800 60 120S70 S 8.400 120 100$80$8,000 80 260 300 $21,200 150@? The sales during 20X8 were made at the following selling prices: 60 units905,400 120 units100 12.000 80 units 1108,800 $26.200 260 1. 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 2. 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 rateExplanation / Answer
Answers
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
100
$ 50.00
$ 5,000.00
10
$ 50.00
$ 500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
80
$ 60.00
$ 4,800.00
0
$ 60.00
$ -
09-May
120
$ 70.00
$ 8,400.00
80
$ 70.00
$ 5,600.00
40
$ 70.00
$ 2,800.00
21-Oct
100
$ 80.00
$ 8,000.00
$ 80.00
$ -
100
$ 80.00
$ 8,000.00
TOTAL
410
$ 26,700.00
260
$ 15,400.00
150
$ 11,300.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
0
$ 50.00
$ -
110
$ 50.00
$ 5,500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
40
$ 60.00
$ 2,400.00
40
$ 60.00
$ 2,400.00
09-May
120
$ 70.00
$ 8,400.00
120
$ 70.00
$ 8,400.00
0
$ 70.00
$ -
21-Oct
100
$ 80.00
$ 8,000.00
100
$ 80.00
$ 8,000.00
0
$ 80.00
$ -
TOTAL
410
$ 26,700.00
260
$ 18,800.00
150
$ 7,900.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
09-May
120
$ 70.00
$ 8,400.00
21-Oct
100
$ 80.00
$ 8,000.00
TOTAL
410
65.12
$ 26,700.00
150
65.12
$ 9,768.00
260
$ 65.12
$ 16,931.20
FIFO
LIFO
Weighted Average Method
Sales Revenue
$ 26,200.00
$ 26,200.00
$ 26,200.00
(-) Cost of Goods Sold (as calculated above)
$ 15,400.00
$ 18,800.00
$ 9,768.00
Gross Margin
$ 10,800.00
$ 7,400.00
$ 16,432.00
FIFO
LIFO
Difference
Sales Revenue
$ 26,200.00
$ 26,200.00
$ -
(-) Cost of Goods Sold (as calculated above)
$ 15,400.00
$ 18,800.00
$ (3,400.00)
Gross Margin
$ 10,800.00
$ 7,400.00
$ 3,400.00
Income Taxes
$ 4,320.00
$ 2,960.00
$ 1,360.00
---Hence, If LIFO has been used instead of FIFO, the cost of goods sold would have been more by $3,400, and as a result, gross profits would have been lower by the same amount resulting in lower net income.
The income tax expenses under LIFO would have been $ 1,360 LOWER than what they have been if FIFO method was being used.
FIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
100
$ 50.00
$ 5,000.00
10
$ 50.00
$ 500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
80
$ 60.00
$ 4,800.00
0
$ 60.00
$ -
09-May
120
$ 70.00
$ 8,400.00
80
$ 70.00
$ 5,600.00
40
$ 70.00
$ 2,800.00
21-Oct
100
$ 80.00
$ 8,000.00
$ 80.00
$ -
100
$ 80.00
$ 8,000.00
TOTAL
410
$ 26,700.00
260
$ 15,400.00
150
$ 11,300.00
LIFO
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
0
$ 50.00
$ -
110
$ 50.00
$ 5,500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
40
$ 60.00
$ 2,400.00
40
$ 60.00
$ 2,400.00
09-May
120
$ 70.00
$ 8,400.00
120
$ 70.00
$ 8,400.00
0
$ 70.00
$ -
21-Oct
100
$ 80.00
$ 8,000.00
100
$ 80.00
$ 8,000.00
0
$ 80.00
$ -
TOTAL
410
$ 26,700.00
260
$ 18,800.00
150
$ 7,900.00
Average Method
Cost of Goods available for sale
Cost of Goods Sold
Ending Inventory
Units
Cost/unit
COG for sale
Units sold
Cost/unit
COGS
Units
Cost/unit
Ending inventory
Beginning Inventory
110
$ 50.00
$ 5,500.00
Purchases:
10-Feb
80
$ 60.00
$ 4,800.00
09-May
120
$ 70.00
$ 8,400.00
21-Oct
100
$ 80.00
$ 8,000.00
TOTAL
410
65.12
$ 26,700.00
150
65.12
$ 9,768.00
260
$ 65.12
$ 16,931.20