Question

Givoly Inc. 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			Unit Cost
Inventory, December 31, prior year				7,900			$	11
For the current year:
Purchase, March 5				19,900				9
Purchase, September 19				10,900				5
Sale ($27 each)				8,900
Sale ($29 each)				16,900
Operating expenses (excluding income tax expense)	$	409,000

1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO.

2. Compute the difference between the pretax income and the ending inventory amounts for the two cases.

Comparison Amounts

Case A Case B

FIFO LIFO Difference

Pretax Income

Ending Inventory

3. Which inventory costing method may be preferred for income tax purposes?

Answer 1

Computation of Cost of Goods Sold & Inventory as per FIFO
Cost of Goods Sold
No. of Unit Sod:- 25800 Unit
7900 UnitX $11	$86,900.00
17900 UnitX $9	$161,100.00
Cost of Goods Sold	$248,000.00
Ending Inventory
2000 Unti X $9	$18,000.00
10900 Unti X $5	$54,500.00
Value of Ending Inventory	$72,500.00
Computation of Cost of Goods Sold & Inventory as per LIFO
Cost of Goods Sold
No. of Unit Sod:- 25800 Unit
10900 UnitX $5	$54,500.00
14900 UnitX $9	$134,100.00
Cost of Goods Sold	$188,600.00
Ending Inventory
7900 UnitX $11	$86,900.00
5000 UnitX $9	$45,000.00
Value of Ending Inventory	$131,900.00

Part-1: Income Stateemnt
	As per FIFO	As per LIFO
Sales (27*8900)+(16900*29)	$730,400.00	$730,400.00
Less: Cost of Goods Sold	$248,000.00	$188,600.00
Less: Operating Expense	$409,000.00	$409,000.00
Net Income	$73,400.00	$132,800.00

Part-2 Comparison
	Case A	Case B
	FIFO	LIFO	Difference
Pre Tax Income	$73,400.00	$132,800.00	-$59,400.00
Ending Inventory	$72,500.00	$131,900.00	-$59,400.00

Part-3 : FIFO