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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 $ 7.1 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 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 $ 7.1 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 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
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, 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. Transaction Inventory Item A Inventory Item B 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)?
Transcribed Image Text: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. Transaction Inventory Item A Inventory Item B 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)?
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