Question

[The following information applies to the questions displayed below.] Broadhead Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2: Units 2,870 Unit Cost $ 13 11 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Sales ($55 each) Operating expenses (excluding income tax expense) 8,900 7,910 10,860 $186,000

Answer 1

BORDHEAD COMPANY Income statement For the year ended December 31, current year Case A FIFO Method $597,300 Case B LIFO Method 597,300 (10860*55) Sales Revenue Cost of goods sold Beginning inventory Purchases $ $ 37,310 224,460 $ 37,310 $ 224,460 Goods avilable for sale $ 261,770 $ 261,770 Ending inventory $ 136,570 $ 102,760 (Refer working note) Cost of goods sold $125,200 $ 159,010 Gross profit $472,100 $ 438,290 Operating expenses $186,000 $ 186,000 Pre tax income $286,100 $ 252,290 Comparision of amounts Case A 286,100 $ 136,570 Pre tax income Ending inventory Case B Difference $252,290 $ 33,810 $ 102,760 $ 33,810

Working Notes FIFO Method Date Total Particulars Jan-01 Beginning inventory Apr-11 Purchases Jun-01 Purchases Total goods avilable for sale (A) Quantity 2,870 8,900 7.910 19.680 Per unit $ 13.00 $ 11.00 $ 16.00 $ $ $ 37,310 97,900 126,560 261,770 Cost of goods sold (B) 10.860 125,200 (2.870 * $ 13) + (7,990 * $11) 136,570 Ending inventory (A)-(B) 8,820 LIFO Method Date Total Particulars Jan-01 Beginning inventory Apr-11 Purchases Jun-01 Purchases Total goods avilable for sale (A) Quantity 2.870 8,900 7,910 19.680 Per unit $ 13.00 $ $ 11.00 $ $ 16.00 $ 37.310 97,900 126,560 261,770 Less Cost of goods sold (B) 10.860 159,010 (7.910 * $ 16) + (2,950 * $ 11) 102,760 Ending inventory (A)-(B) 8.820