Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In 2011, our industry experienced more normalized price inflation of approximately 3.1 percent overall despite price deflation for certain chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sales data are presented below. Inventory Item A Inventory Item B Transaction Units Unit Cost Units Unit Cost Beginning inventory 150 $ 7.1 150 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 $ 7.1 6.1 4.1 Sales, April 28 380 380 Required: 1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods. 2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?

Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In 2011, our industry experienced more normalized price inflation of approximately 3.1 percent overall despite price deflation for certain chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sales data are presented below. Inventory Item A Inventory Item B Transaction Units Unit Cost Units Unit Cost Beginning inventory 150 $ 7.1 150 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 $ 7.1 6.1 4.1 Sales, April 28 380 380 Required: 1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods. 2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Pool Corporation Inc. reported in its recent annual report that the industry experienced some price deflation one year followed by more normalized price inflation of approximately 2 percent overall despite price deflation for certain chemical products. This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sale information are presented below. Pool uses a perpetual inventory system. Transaction Beginning inventory Purchases, February 7 Sales, February 28 Purchases, March 16 Sales, April 28 Item A Item B FIFO Inventory Item A Unit Cost Cost of Sales Units 40 80 50 100 110 $6 8 Weighted-Average 99 Inventory Item B Unit Cost Required: 1. Compute the cost of sales for each of the two items separately using the FIFO and weighted average cost inventory costing methods. (Do not…
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