Question

Broadhead Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2:

			Units			Unit Cost
Inventory, December 31, prior year				2,830			$	12
For the current year:
Purchase, April 11				8,860				10
Purchase, June 1				7,850				15
Sales ($52 each)				10,810
Operating expenses (excluding income tax expense)	$	189,000

1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO.

2. Compute the difference between the pretax income and the ending inventory amount for the two cases.

Answer 1

	CALCULATION OF COST OF ENDING INVENTORY AND COST OF GOODS SOLD UNDER FIFO METHOD
			PURHASES			COST OF GOODS SOLD			CLOSING BALANCE
	Date	Particulars	Units (A)	Rate Per unit	Total Cost	Units (A)	Rate Per unit	Total Cost	Units (A)	Rate Per unit	Total Cost
	January , 01	Opening Inventory							2830	$12	$33,960
	April ,11	Purchases	8860	$10	$88,600				2830	$12	$33,960
									8860	$10	$88,600
	June , 01		7850	$15	$117,750				2830	$12	$33,960
									8860	$10	$88,600
									7850	$15	$117,750
		Sales				2830	$12	$33,960
						7980	$10	$79,800	880	$10	$8,800
									7850	$15	$117,750
					Total	10810		113760	8730		$126,550
			Unit	Amoun
		COGS as per FIFO Method	10,810.00	$113,760
		Closing inventory	8730	$126,550
	CALCULATION OF COST OF ENDING INVENTORY AND COST OF GOODS SOLD UNDER LIFO METHOD
			PURHASES			COST OF GOODS SOLD			CLOSING BALANCE
	Date	Particulars	Units (A)	Rate Per unit	Total Cost	Units (A)	Rate Per unit	Total Cost	Units (A)	Rate Per unit	Total Cost
	January , 01	Opening Inventory							2830	$12	$33,960
	April ,11	Purchases	8860	$10	$88,600				2830	$12	$33,960
									8860	$10	$88,600
	June , 01		7850	$15	$117,750				2830	$12	$33,960
									8860	$10	$88,600
									7850	$15	$117,750
		Sales				7850	$15	$117,750
						2960	$10	$29,600	5900	$10	$59,000
									2830	$12	$33,960
					Total	10810		$147,350	8730		$92,960
			Unit	Amoun
		COGS as per FIFO Method	10,810.00	$147,350
		Closing inventory	8730	$92,960
		CALCULATION OF THE PRETAX INCOME UNDER THE FIFO AND LIFO METHOD
		PARTICULARS	FIFO	LIFO
		Sales (10,810 X $ 52)	$562,120	$562,120
		Less: COGS	$113,760	$147,350
		Gross Revenue	$448,360	$414,770
		Less: Operating Expenses	$189,000	$189,000
		Pretgax Income	$259,360	$225,770
		Difference ($ 259,360(Fifo ) - $ 225,770 (LIFO) =	$33,590
		CALCULATION OF THE DIFFERENCE IN INVENTORY
			Unit	Amoun
		Closing inventory as per FIFO	8730	$126,550
		Less: Closing inventory as per LIFO	8730	$92,960
		Difference		$33,590