Question 1, 2, 3, 4 E7-6 Analyzing and Interpreting the Financial Statement Effects...
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Question 1, 2, 3, 4
E7-6 Analyzing and Interpreting the Financial Statement Effects of the FIFO and Weighted-Average Cost Methods L07-2, 017-3 Lunar Company uses a perpetual inventory system. The company's accounting records provided the following information for product 2: Units Unit Cost 3,000 $12 9.000 10 Transactions a. Inventory, December 31, 2019 For the year 2020: b. Purchase, April 11 c. Sale, May 1 ($30 each) d. Purchase, June 1 e. Sale, July 3 ($30 each) 1. Operating expenses (excluding income tax expense), $85,000 5,000 7,000 6,000 13 Required: 1. Prepare a statement of earnings for 2020, through pretax earnings, showing the detailed computation of cost of sales for two cases: a. Case A-FIFO b. Case B-Weighted average For each case, show the computation of the ending inventory. (Hint: Set up adjacent columns, one for each case.) Page 407 2. Compare the pretax earnings and the ending inventory amounts between the two cases. Explain the similarities and differences. 3. Which inventory costing method may be preferred for income tax purposes? Explain. 4. Prepare journal entries to record transactions (b) through (e), assuming that all sales and purchase transactions are on account and that Lunar uses FIFO for inventory costing
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