Question

Problem 6-4A The management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data: Inventories Purchases and Sales Beginning (10,000 units) $20,000 Total net sales (183,000 units) $896,700 Ending (17,000 units) Total cost of goods purchased (190,000 units) 492,000 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 1 50,000 $2.40 $120,000 40,000 2.50 100,000 40,000 2.60 104,000 60,000 2.80 168,000 190,000 $492,000 2 3 4 Operating expenses were $100,000, and the company's income tax rate is 40%.

Answer 1

LIFO $896,700 GRESA INC. Condensed Income Statement For the Year Ended December 2017 FIFO Sales Revenue $896,700 Cost of goods sold Beginning inventory $120,000 Cost of goods purchase $372,000 Cost of goods available for sale $492,000 Ending Inventory $47,600 Cost of goods sold $444,400 Gross profit /(Loss) $452,300 Operating expense $100,000 Income before taxes $352,300 Income taxes $140,920 Net Income/(Loss) $211,380 $120,000 $372,000 $492,000 $40,800 $451,200 $445,500 $100,000 $345,500 $138,200 $207,300 1) FIFO method 2) LIFO method 3) FIFO method 4) 0 Inventory costing method does not affect cash flow Cash flow is affected by payment to vendors 5) Lower 6) Higher Working notes: FIFO method Cost of Goods sold #of Unit COGS Units sold Inventory on Hand # of Unit Inventory Units Cost Balance Date Cost Activity Opening Inventory Purchase Purchase Purchase Sales #of Units 50,000 40,000 40,000 60,000 Purchase Unit Cost $2.40 $2.50 $2.60 Total Cost $120,000 $100,000 $104,000 $168,000 $2.80 50,000 40,000 40,000 43,000 $2.40 $2.50 $2.60 $2.80 $120,000 $100,000 $104,000 $120,400 17,000 $444,400 17,000 Ending Inventory $2.80 $47,600 Totals 190,000 $492,000 173,000 $47,600 LIFO method Cost of Goods sold # of COGS Units sold Cost Unit Purchase Unit Cost $2.40 $2.50 Inventory on Hand #of Unit Inventory Units Cost Balance Date #of Units 50,000 40,000 40,000 60,000 Activity Opening Inventory Purchase Purchase Purchase Sales Total Cost $120,000 $100,000 $104,000 $168,000 $2.60 $2.80 60,000 40,000 40,000 33,000 $2.80 $2.60 $2.50 $2.40 $168,000 $104,000 $100,000 $79,2001 Ending Inventory 17,000 $2 $40,800 $40,800 Totals 140,000 $492,000 173,000 $451,200 17,000