At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $18.20 per unit: Transactions Units Amount Inventory, January 1 590 $1,652 Purchase, January 12 570 Purchase, January 26 170 2,736 1,156 Sale Sale (450) (200) Required: 1a. Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. 1b. Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: (a) average cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. 2a. Between FIFO and LIFO, which method would result in the higher pretax income? 2b. Between FIFO and LIFO, which would result in the higher EPS? 3. Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a 20 percent average tax rate. 4. Between FIFO and LIFO, which method would produce the more favorable cash flow?
At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $18.20 per unit: Transactions Units Amount Inventory, January 1 590 $1,652 Purchase, January 12 570 Purchase, January 26 170 2,736 1,156 Sale Sale (450) (200) Required: 1a. Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. 1b. Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: (a) average cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. 2a. Between FIFO and LIFO, which method would result in the higher pretax income? 2b. Between FIFO and LIFO, which would result in the higher EPS? 3. Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a 20 percent average tax rate. 4. Between FIFO and LIFO, which method would produce the more favorable cash flow?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Transcribed Image Text:At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at
$18.20 per unit:
Transactions
Units
Amount
Inventory, January 1
590
$1,652
Purchase, January 12
570
2,736
Purchase, January 26
170
1,156
Sale
Sale
(450)
(200)
Required:
1a. Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost,
FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory
and the second sale was selected from the January 12 purchase.
1b. Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: (a) average
cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the
beginning inventory and the second sale was selected from the January 12 purchase.
2a. Between FIFO and LIFO, which method would result in the higher pretax income?
2b. Between FIFO and LIFO, which would result in the higher EPS?
3. Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a 20 percent average tax rate.
4. Between FIFO and LIFO, which method would produce the more favorable cash flow?
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