
Concept explainers
(a)
First-in-First-Out:
In First-in-First-Out method, the costs of the initially purchased items are considered as cost of goods sold, for the items which are sold first. The value of the ending inventory consists of the recent purchased items.
Last-in-Last-Out:
In Last-in-First-Out method, the costs of last purchased items are considered as the cost of goods sold, for the items which are sold first. The value of the closing stock consists of the initial purchased items.
The Income statement:
The income statement is a financial statement that shows the net income earned or net loss suffered by a company through reporting all the revenues earned, and expenses incurred by the company over a specific period of time. An income statement is also known as an operation statement, an earning statement, a revenue statement, or a
To Prepare: The comparative condensed income statements for 2019 under FIFO and LIFO.
(b) (1)
To Explain: the reason for the method of inventory cost flow, which produces the more meaningful inventory amount for the
(2)
To Explain: the reason for the method of inventory cost flow, which produces the more meaningful net income.
(3)
To Explain: the reason for the method of inventory cost flow which is most likely to approximate the actual physical flow of the goods.
(4)
To explain: the reason for the excess of cash available under LIFO than under FIFO.
(5)
The amount of gross profit which is illusory in FIFO in comparison with the gross profit under LIFO.

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