Question

The records of Glenn Aviation include the following accounts for inventory of aviation parts atJuly31 of the current​ year:

Inventory
Aug	1	Balance	800	units	@	$7.00		$5,600
Nov	5	Purchase	500	units	@	$7.10		3,550
Jan	24	Purchase	8,100	units	@	$7.50		60,750
Apr	8	Purchase	600	units	@	$8.50		5,100

Sales Revenue
									Jul 31 9,050 units $129,415

Requirement 1. Prepare a partial income statement through gross profit under the​ average, FIFO, and LIFO methods. Round average cost per unit to two decimal places and all other amounts to the nearest dollar.

		Glenn Aviation
		Partial Income Statement
		Year Ended July 31

		Gross profit

Average cost

FIFO

LIFO

Requirement 2. Which inventory method would you use to minimize income​ tax? Explain why this method causes income tax to be the lowest.

Use the

▼

average-cost

FIFO

LIFO

method to minimize income tax because cost of goods sold is highest​ (gross profit is​ lowest) under

▼

average-cost

FIFO

LIFO

when inventory costs are

▼

falling

rising

static

.

Answer 1

Glenn Aviation
Partial income Statement- Average
Sales	$129,415.00
Less; Cost of Goods Sold	$67,875.00
((5600+3550+60750+5100)/(800+500+8100+600))*9050
Gross Profit	$61,540.00
Glenn Aviation
Partial income Statement- FIFO
Sales	$129,415.00
Less; Cost of Goods Sold	$67,275.00
(800*7+500*7.10+(9050-800-500)*7.50)
Gross Profit	$62,140.00
Glenn Aviation
Partial income Statement- LIFO
Sales	$129,415.00
Less; Cost of Goods Sold	68035
(600*8+8100*7.50+(9050-600-8100)*7.10)
Gross Profit	$61,380.00

LIFO Method we will use to minimize income tax because cost of goods Sold will be higher in LIFO method When inventory cost is rising