Question

A) Required information

[The following information applies to the questions displayed below.]

The following information pertains to the inventory of Parvin Company during Year 2:

Jan. 1	Beginning Inventory	400	units	@	$	30
Apr. 1	Purchased	2,000	units	@	$	35
Oct. 1	Purchased	600	units	@	$	38

During Year 2, Parvin sold 2,700 units of inventory at $90 per unit and incurred $41,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $75,000, inventory of $12,000, common stock of $50,000, and retained earnings of $37,000.

Required
a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

FIFO

No	Date	General Journal	Debit	Credit
1	Apr 01	Merchandise inventory	70,000
		Cash		70,000
2	Oct 01	Merchandise inventory	22,800
		Cash		22,800
3	Dec 31	Cash	243,000
		Sales revenue		243,000
4	Dec 31	Cost of goods sold	93,400
		Merchandise inventory		93,400
5	Dec 31	Operating expenses	41,500
		Cash		41,500
6	Dec 31	Income tax expense
		Cash

LIFO

No	Date	General Journal	Debit	Credit
1	Apr 01	Merchandise inventory	70,000
		Cash		70,000
2	Oct 01	Merchandise inventory	22,800
		Cash		22,800
3	Dec 31	Cash	243,000
		Sales revenue		243,000
4	Dec 31	Cost of goods sold	95,800
		Merchandise inventory		95,800
5	Dec 31	Operating expenses	41,500
		Cash		41,500
6	Dec 31	Income tax expense
		Cash

Please fill in the blanks for #6.

D) d. Determine the cash flow from operating activities under FIFO and LIFO. (Amounts to be deducted should be indicated with minus sign.)

	PARVIN Company Cash Flows from Operating Activities FIFO LIFO Cash flows from operating activities: Cash inflow from customers Cash outflow for inventory Cash outflow for operating expenses Cash outflow for income tax expense Net cash flow from operating activities $0 $0

Please fill in the blanks on the chart. Thank you.

Answer 1

FIFO

No	Date	General Journal	Debit	Credit
1	Apr 01	Merchandise inventory	70,000
		Cash		70,000
2	Oct 01	Merchandise inventory	22,800
		Cash		22,800
3	Dec 31	Cash	243,000
		Sales revenue		243,000
4	Dec 31	Cost of goods sold	93,400
		Merchandise inventory		93,400
5	Dec 31	Operating expenses	41,500
		Cash		41,500
6	Dec 31	Income tax expense	32,430
		Cash		32,430

LIFO

No	Date	General Journal	Debit	Credit
1	Apr 01	Merchandise inventory	70,000
		Cash		70,000
2	Oct 01	Merchandise inventory	22,800
		Cash		22,800
3	Dec 31	Cash	243,000
		Sales revenue		243,000
4	Dec 31	Cost of goods sold	95,800
		Merchandise inventory		95,800
5	Dec 31	Operating expenses	41,500
		Cash		41,500
6	Dec 31	Income tax expense	31,710
		Cash		31,710

Cash Flows from Operating Activities
	FIFO	LIFO
Cash flows from operating activities:
Cash inflow from customers	$243,000	$243,000
Cash outflow for inventory	$92,800	$92,800
Cash outflow for operating expenses	$41,500	$41,500
Cash outflow for income tax expense	$32,430	$31,710
Net cash flow from operating activities	$76,270	$76,990