Emily 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 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Units 2,930 $ 191,000 8,880 8,000 10,880 Unit Cost $ 11 12 17 Sales ($58 each) Operating expenses (excluding income tax expense) Required: 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 3. Which inventory costing method may be preferred for income tax purposes?
Emily 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 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Units 2,930 $ 191,000 8,880 8,000 10,880 Unit Cost $ 11 12 17 Sales ($58 each) Operating expenses (excluding income tax expense) Required: 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 3. Which inventory costing method may be preferred for income tax purposes?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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vaibhav
Subject-Accounting
Transcribed Image Text:Emily 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
2,930
$191,000
Inventory, December 31, prior year
For the current year:
Purchase, April 11
Purchase, June 11
Sales ($58 each)
Operating expenses (excluding income tax expense)
Required:
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
Unit Cost
$ 11
8,880
8,000
10,880
12
17
2. Compute the difference between the pretax income and the ending inventory amount for the two cases
3. Which inventory costing method may be preferred for income tax purposes?
Transcribed Image Text:Sales revenue
Cost of goods sold:
Beginning inventory
Purchases
Purchases
Goods available for sale
Ending inventory
Cost of goods sold
Gross profit
Operating expenses
Pretax income
EMILY COMPANY
Income Statement
For the Year Ended December 31, current year
Case A
FIFO
32,230
106,560 X
136,000
274,790
$ 631,040
127,630
503,410
191,000
$ 312,410
$
Case B
LIFO
32,230
106,560
136,000
274,790
$631,040
170,560
503,410
191,000
$ 269,480
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Step 1: Understanding FIFO and LIFO Methods of Inventory Valuation
VIEWStep 2: Calculation of Ending Inventory under FIFO and LIFO Methods
VIEWStep 3: Requirement 1- Preparation of Income Statement
VIEWStep 4: Requirement 2 - Difference between Pre-tax Income and Ending Inventory Amount
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