Question

sheet, and (2) the highest cost of goods sold for the income statement il lor the balance Maruli March 10 March 2 March 3 ending inventory, come statements, er questions using LIFO. riateness of using its mpany requests your the FIFO or the LIFO Instructions (a) Prepare partia ending invent lowing cost flc nearest dollar (1) Specific ic P6-4A The management of Gresa Inc. is reevaluating the appropriateness present inventory cost flow method, which is average-cost. The company help in determining the results of operations for 2017 if either the FIEO method had been used. For 2017, the accounting records show these data: Inventories Purchases and Sales Beginning (7,000 units) $14.000 Total net sales (180,000 units) $747 Ending (17,000 units) Total cost of goods purchased (190,000 units) 466,000 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 50,000 $2.20 $110,000 2 40,000 2.35 94,000 3 40,000 100,000 60,000 Toto 2.70 162.000 190,000 $466,000 (i) The tory a (ii) The ning Marc (2) FIFO. (3) LIFO. (b) How can con method wou 2.50 P6-7A The mar effects of the F records provide rofit: 312,900 303,000 Operating expenses were $130,000, and the company's income tax rate is 40%. Instructions (a) Prepare comparative condensed income statements for 2017 under FIFO and LIFO. (Show computations of ending inventory.) (b) Answer the following questions for management. (1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why? (2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why? (3) Which cost flow method (FIFO or LIFO) is more likely to approximate the actua physical flow of goods? Why? (4) How much more cash will be available for management under LIFO than FIFO? Why? (5) Will gross profit under the average-cost method be higher or lower than Than LIFO? (Note: It is not necessary to quantify your answer.) Units purchase August 15; and Instructions (a) Prepare ce (Show con - А (1) Which amour (2) Which ading inventory, 's sold, gross P6-5A You are provided with the following information for Koetteritz Inc. for them ended June 30, 2017. Koetteritz uses the periodic method fom i

Answer 1

(a)

Gresa Inc.
Condensed Income Statements
For the Year Ended 2017
	FIFO	LIFO
Net sales	747000	747000
Cost of goods sold	434100	444000
Gross profit	312900	303000
Operating expenses	130000	130000
Income from operations	182900	173000
Income tax expense	73160	69200
Net income $	109740	103800

Working:

Cost of goods available for sale = Beginning inventory + Purchases = $14000 + $466000 = $480000

Ending inventory:

FIFO: 17000 x $2.70 = $45900

LIFO: $14000 + (10000 x $2.20) = $14000 + $22000 = $36000

Cost of goods sold:

FIFO: $480000 - $45900 = $434100

LIFO: $480000 - $36000 = $444000

(b)

(1) LIFO cost flow method provides more meaningful inventory amount for the balance sheet since the inventory is reflected at the latest market value.

(2) FIFO cost flow method produces the more meaningful net income since it is more closely associated with the actual flow of goods and costs during the period.

(3) FIFO cost flow method is more likely to approximate the actual physical flow of goods since goods purchased earlier are likely to be sold first.

(4) More cash available for management under LIFO: $109740 - $103800 = $5940

(5) Gross profit under the average-cost method will be lower than FIFO and higher then LIFO.