Hanna has newly opened a company dedicated to the sale of mild chocolate, dark chocolate and white

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Question:

Hanna has newly opened a company dedicated to the sale of mild chocolate, dark chocolate and white chocolate.

During its first month of activity, the company has made the following transactions:

January 2: Purchase of mild chocolate: 2.500Kg@10$/Kg $ 25.000

Purchase of dark chocolate: 4.000Kg @ 5$/Kg $ 20.000

Purchas of white chocolate: 6.000Kg @ 3$/ Kg $ 18.000

January 3: Purchase of mild chocolate : 1.500Kg@12$/Kg $18.000

Purchase of dark chocolate: 2.000Kg @ 6$/Kg $ 12.000

Purchas of white chocolate: 2.000Kg @ 4$/ Kg $ 8.000

January 6: Sold to several clients:

Mild chocolte: 2.000Kg@ 20$/Kg $40.000

Dark chocolate: 2.500Kg @ 11$/Kg $ 27.500

White chocolate: 3.000Kg @ 7$/ Kg $ 21.000

January 6: Sold to chocolate Lovers Inc.:

Mild chocolate: 500Kg @20$/Kg. $ 10.000

Dark chocolate: 1.000Kg @ 11$/Kg $ 11.000

White chocolate: 1.500Kg @ 8$/ Kg $ 12.000

January 12

Purchase of mild chocolate: 1.500Kg@14$/Kg $ 21.000

Purchase of dark chocolate: 2.000Kg @ 8$/Kg $ 16.000

January 13: Sale of white chocolate to white chocolate Lovers Inc.: 3.500Kg @8$/kg $ 28.000

January 14: Purchase of white chocolate 6.000 Kg @4$/Kg $24.000

January 19: Sold to several clients:

Mild chocolate: 1.000Kg@ 21$/Kg. $ 21.000

Dark chocolate: 1.500Kg @ 13$/Kg $ 19.500

White chocolate: 3.000Kg @ 9$/ Kg $ 27.000

January 25: Purchased from various suppliers:

Mild chocolate: 1.000Kg@13$/Kg. $ 13.000

Dark chocolate: 1.000Kg @ 9$/Kg $ 9.000

White chocolate: 1.000Kg @ 4$/ Kg $ 4.000

Besides these transactions, the company has had the following expenses:

Salaries: ................................................$3500

Electricity bill: ...........................................$300

Renting of equipment: ............................$800

Rent of warehouse and office: ...........$1.500

Miscellaneous: ........................................$1.200

Hanna’s accountant recommended that she should use the average cost method in order to determine the cost of the inventory sold but she is not sure about the consequences it may have on his financial situation.

1. Prepare an Income statement of the company at the end of January using as method of valuation of the inventory the average cost method, LIFO and FIFO for each one of the products sold by Hanna, and calculate the balance of the inventory at the end of the month. Explain the calculations.

2. In order to compare with the records made by her accountant, Hanna asks you to prepare the different journal entries for the purchases and sales mentioned above for each one of the 3 different methods used above.