Question

# Orion Iron Corp. tracks the number of units purchased and sold throughout each year but applies...

 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.

 Transactions Units Unit Cost a. Inventory, Beginning 500 \$ 10 For the year: b. Purchase, April 11 800 8 c. Purchase, June 1 700 12 d. Sale, May 1 (sold for \$38 per unit) 500 e. Sale, July 3 (sold for \$38 per unit) 520 f. Operating expenses (excluding income tax expense), \$19,000

 Required:
 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. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

 Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

6. Which inventory costing method minimizes income taxes?
 FIFO LIFO Weighted Average Cost

1) Number of goods available for sale = 500+800+700 = 2000 Units

Cost of goods available for sale = (500*10+800*8+700*12) = 19800

2) Ending inventory = 2000-1020 = 980 Units

3) Cost of ending inventory and cost of goods sold

 Cost of ending inventory Cost of goods sold FIFO (700*12+280*8) = 10640 19800-10640 = 9160 LIFO (500*10+480*8) = 8840 19800-8840 = 10960 Weighted average 19800/2000*980 = 9702 19800-9702 = 10098

5) Prepare an Income Statement that shows the FIFO method, LIFO method and weighted average method.

 FIFO LIFO Weighted average Sales 1020*38 = 38760 38760 38760 Cost of goods sold 9160 10960 10098 Gross profit 29600 27800 28662 Operating expense 19000 19000 19000 Net operating income 10600 8800 9662

6) LIFO Minimize income tax

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