Lunar Company uses a perpetual inventory system. The company's accounting records provided the following information for Product 2: Units 3,300 Unit Cost $12 Transactions a. Inventory, December 31, 2016 For the year 2017: b. Purchase, April 11 c. Sale, May 1 ($30 each) d. Purchase, June 1 e. Sale, July 3 ($30 each) f. Operating expenses (excluding income tax expense), $85,300 9,300 5,300 8,300 6,300 10 13 - Required: 1. Prepare a statement of earnings for 2017, through pretax earnings, showing the detailed computation of cost of sales for two cases: a. Case A-FIFO b. Case BWeighted average (Round intermediate calculations to 2 decimal place.) LUNAR COMPANY Statement of Earnings (Partial) For the Year Ended December 31, 2017 Case A Case B FIFO Weighted Average Sales revenue $ 348,000/ $ 348,000 Cost of sales: Beginning inventory 39,600 39,600 Purchases 200,900 200,900 Cost of goods available for sale 240,500 240,500 Ending inventory 117,900 Cost of sales 122,600 240,500 Gross profit 225,400 107,500 Expenses 85,300 85,300 Pretax earnings $ 140,100 $ 22,200 2. Calculate the pretax earnings and the ending inventory amounts between the two cases. Comparison of Amounts Case A Case B FIFO Weighted Average $ 140,100 Pretax earnings Difference Ending Inventory Difference 117,900 3. Which inventory costing method may be preferred for income tax purposes? O FIFO Weighted Average 4. Prepare journal entries to record transactions (b) through (e), as well as the cost of sales at December 31, 2017, assuming that Lunar uses FIFO for inventory costing. (If no entry is required for a transaction/event, select "No journal entry required in the first account field.) View transaction list 1 Record purchase of goods on account. 2 Record sales on account. 3 Record purchase of goods on account. 4 Record sales on account. 5 Record operating expenses. Credit 6 Record cost of sales for the period. 7 Record the entry to transfer the ending inventory amount from the cost of sales account. Note : = journal entry has been entered Record entry Clear entry View general journal 4. Prepare journal entries to record transactions (b) through (e), as well as the cost of sales at December 31, 2017, assuming that Lunar uses FIFO for inventory costing. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet 2 3 4 5 6 7 Record purchase of goods on account. Note: Enter debits before credits. Transaction General Journal Debit Credit b. Record entry Clear entry View general journal
