Question

P7-5 (Algo) Evaluating the LIFO and FIFO Choice When Costs Are Rising and Falling LO7-2, 7-3

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Income is to be evaluated under four different situations as follows:

a. Prices are rising:

(1) Situation A: FIFO is used.

(2) Situation B: LIFO is used.

b. Prices are falling:

(1) Situation C: FIFO is used.

(2) Situation D: LIFO is used.

The basic data common to all four situations are sales, 502 units for $17,570; beginning inventory, 295 units; purchases, 393 units; ending inventory, 186 units; and operating expenses, $3,600. The income tax rate is 35%.

P7-5 Part 1

Required:

1. Complete the following tabulation for each situation in Situations A and B (prices rising), assume the following: beginning inventory, 295 units at $8 = $2,360; purchases, 393 units at $9 = $3,537. In Situations C and D (prices falling), assume the opposite; that is, beginning inventory, 295 units at $9 = $2,655; purchases, 393 units at $8 = $3,144.Use periodic inventory procedures. (Round your answers to nearest dollar amount.)

	PRICES RISING		PRICES FALLING
	Situation A	Situation B	Situation C	Situation D
	FIFO	LIFO	FIFO	LIFO
Sales revenue	$17,570	$17,570	$17,570	$17,570
Cost of goods sold:
Beginning inventory	2,360
Purchases	3,537
Goods available for sale	5,897
Ending inventory	1,674
Cost of goods sold	4,223
Gross profit	13,347
Expenses	3,600	3,600	3,600	3,600
Pretax income	9,747
Income tax expense	3,411
Net income	$6,336

Answer 1

Note: I have provided rounding off amounts upto 2 decimal places. You can round off your answers if required.