
Concept Introduction:
Income Statement:
Income statement is a financial summary about company's revenues, expenses,
Periodic Inventory System:
It updates the closing inventory in the ledger after the physical count is done.
Last in first out (LIFO):
It is the
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
Weighted Average:
It is the inventory valuation in which total value of inventory is divided by the total inventory.
To prepare:
Comparative Income statement using three methods when a company uses periodic inventory system.

Answer to Problem 8APSA
Particulars | FIFO | LIFO | Weighted Average |
Sales | $200,000 | $200,000 | $200,000 |
Less: Cost of goods sold | ($78,000) | ($84,700) | ($81,340) |
Gross profit | $122,000 | $115,300 | $118,660 |
Less: Expenses | ($20,000) | ($20,000) | ($20,000) |
Income before taxes | $102,000 | $95,300 | $98,660 |
Income tax expense(40%) | ($40,800) | ($38,120) | ($39,464) |
Net Income | $61,200 | $57,180 | $59,196 |
Explanation of Solution
Valuation of Closing stock is done as:
Under FIFO:
Under LIFO:
Under weighted average:
Price in weighted average is calculated as:
Cost of goods sold is calculated as follows-
Particulars | FIFO | LIFO | Weighted Average |
Sales | $122,000 | $122,000 | $122,000 |
Less: Closing stock | $44,000 | $37,300 | $40,660 |
Cost of goods sold | $78,000 | $84,700 | $81,340 |
Calculation of Net Income is as follows-FIFO-
LIFO-
Weighted Average-
Conclusion-
Thus, Income statement is prepared.
Concept Introduction:
Last in first out (LIFO):
It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
Weighted Average:
It is the inventory valuation in which total value of inventory is divided by the total inventory.
To Explain:
To explain the changes in financial results by using inventory costing methods.

Answer to Problem 8APSA
As the purchase price of the inventory decresaes, the closing stock will be lower in case of FIFO method of inventory costing. The decrease in closing stockincreases cost of goods sold. The more cost of goods sold decreases gross profit under FIFO than LIFO. So, the net income will be lower under FIFO costing method.
Explanation of Solution
The requirement is explained in the answer.
Concept Introduction:
Last in first out (LIFO):
It is the inventory valuation method in which inventory purchased at the end is first sold out. Hence the closing inventory count is done from beginning.
First in first out (FIFO):
It is the inventory valuation method in which inventory purchased in the beginning of the year is first sold out. Hence the closing inventory count is done from end.
To Explain:
The advantages and disadvantages of LIFO and FIFO method.

Answer to Problem 8APSA
Particulars | FIFO | LIFO |
Advantages | It assigns the lower amount to cost of goods sold. | It assigns the highest amount to cost of goods sold. |
Disadvantages | The net income is higher. | The net income is lower. |
Explanation of Solution
The requirement is explained in the answer.
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