Chapter 6, Problem 6AE

Exercise 6-6A

Periodic: Income effects of inventory methods

Use the data and results from Exercise 6-5 to prepare comparative income statements for the month of January for the company similar to those shown in Exhibit 6.8 for the four inventory methods. Assume expenses are $1,250, and that the applicable income tax rate is 40%. (Round amounts to cents.)

Required

1. Which method yields the highest net income?

2. Does net income using weighted average fall above, between, or below that using FIFO and LIFO?

3. If costs were rising instead of falling, which method would yield the highest net income?