ArmyNavy Surplus began July 2016 with 100 tents that cost $15 each. During the month, they made the following purchases at cost:

July

6

120 tents

@

$25

=

$3,000

18

130 tents

@

$30

=

3,900

26

50 tents

@

$32

=

1,600

Army minus Navy SurplusArmyNavy Surplus sold 330 tents, and at July 31, the ending inventory consists of 70

tents. The sale price of each tent was $50.

Requirements

1.	Determine the cost of goods sold and ending inventory amounts for July under the average cost, FIFO cost, and LIFO cost. Round average cost per unit to two decimal places, and round all other amounts to the nearest dollar.
2.	Explain why cost of goods sold is highest under LIFO. Be specific.
3.	Prepare the ArmyNavy Surplus income statement for July. Report gross profit. Operating expenses totaled $4,750. ArmyNavy Surplus uses average costing for inventory. The income tax rate is 32%.

Requirement 1. Determine the cost of goods sold and ending inventory amounts for July

under the average cost, FIFO cost, and LIFO cost. Round average cost per unit to two decimal places, and round all other amounts to the nearest dollar.

	Number of units	Average cost
Cost of goods sold
Ending inventory

FIFO

LIFO

Requirement 2. Explain why cost of goods sold is highest under LIFO. Be specific.

Under LIFO the cost of goods sold is the highest because costs are

falling

rising

static

and LIFO assigns the

most recent units purchased

oldest units purchased

weighted-average unit cost

to cost of goods sold.Requirement 3. Prepare

Army minus Navy SurplusArmyNavy Surplus'

income statement for

July.

Report gross profit. Operating expenses totaled

$4,750.

ArmyNavy Surplus uses the average costing for inventory. The income tax rate is

32%.

(Round income tax expense to the nearest whole dollar.)

Army-Navy Surplus
Income Statement
Month Ended July 31, 2016
	Net income