Chapter 5, Problem 62PB

Castana Company is considering changing inventory cost flow methods. Castana’s primary objective is to minimize its tax liability. Currently, the firm uses weighted average cost. Data for 2012 are provided.

Operating expenses were $12,000 and the company’s tax rate is 25%.

Requirements

1. 1. Prepare the income statement for 2012 using each of the following methods:
   1. a. FIFO periodic
   2. b. LIFO periodic
2. 2. Which method provides the more current balance sheet inventory balance at December 31, 2012? Explain your answer.
   1. 3. Which method provides the more current cost of goods sold for the year ended December 31, 2012? Explain your answer.
   2. 4. Which method provides the better inventory turnover ratio for the year? Explain your answer.
   3. 5. In order to meet its goal, what is your recommendation to Castana Company? Explain your answer.