At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $15.80 per unit: Transactions Units Amount Inventory, January 1 680 $3,400 Purchase, January 12 650 4,550 Purchase, January 26 210 1,890 Sale (540) Sale (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 $15.80 per unit: Transactions Units Amount Inventory, January 1 680 $3,400 Purchase, January 12 650 4,550 Purchase, January 26 210 1,890 Sale (540) Sale (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
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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 $15.80 per unit: Transactions Units Amount Inventory, January 1 680 $3,400 Purchase, January 12 650 4,550
Purchase, January 26 210 1,890 Sale (540) Sale (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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