Question
Evaluating Three Alternative Inventory Methods Based on net Earnings and Cash Flow. At the end of January 2018, the records of Regina Company showed the
Evaluating Three Alternative Inventory Methods Based on net Earnings and Cash Flow.
At the end of January 2018, the records of Regina Company showed the following for a particular item that sold at $18 per unit:
Transaction Units Amounts
Inventory, Jan 1, 2018 500 $2500
Sale, January 10 (400)
Purchase, January 12 600 $3600
Sale, January 17 (300)
Purchase, January 26 160 $1280
Required:
1.Assuming the use of a perpetual inventory system, prepare a summaried statement through gross profit on sales under each of the following inventory costing methods: (a) weighted-average cost, (b) FIFO, and (c) specific identification, assuming that the company is permitted to use this method. For specific identification, assume that the first sale was out of the beginning inventory and the second sale was out of the January 12 purchase. Show the inventory computations in detail.
2.What method would result in
a. the highest pretax earnings?
b. the lowest income tax expense?
c. the most favourable cash flow?
d. explain
3.Prepare Journal Entries to record the transactions that occurred in January 2018, assuming that FIFO is used for inventory costing
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