Question

E7-8 Evaluating the Effects of Inventory Methods on Income from Operations, Income Taxes, and Net Income (Periodic) [LO 7-3]

Courtney Company uses a periodic inventory system. The following data were available: beginning inventory, 1,800 units at $40; purchases, 4,200 units at $42; operating expenses (excluding income taxes), $95,500; ending inventory per physical count at December 31, 1,150 units; sales price per unit, $80; and average income tax rate, 30%.

Required:

1.	Prepare income statements under the FIFO, LIFO, and weighted average costing methods. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

          

          

2-a.	Between FIFO and LIFO, which method is preferable in terms of maximizing income from operations, if costs are rising?

LIFO FIFO

2-b.	Between FIFO and LIFO, which method is preferable in terms of minimizing income taxes, if costs are rising?

LIFO FIFO

3-a.	Between FIFO and LIFO, which method is preferable in terms of maximizing income from operations, if costs are falling?
	LIFO FIFO

3-b.	Between FIFO and LIFO, which method is preferable in terms of minimizing income taxes, if costs are falling?
	LIFO FIFO

Answer 1

Req 1
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	1800	40	72000	1800	40	72000
Purchasse	4200	42	176400	3050	42	128100	1150	42	48300
TOTAL	6000		248400	4850		200100	1150		48300
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	1800	40	72000	650	40	26000	1150	40	46000
Purchasse	4200	42	176400	4200	42	176400
TOTAL	6000		248400	4850		202400	1150		46000
STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC WEIGHTED AVERAGE METHOD
	RECIEPTS			COST OF GOODS SOLD			BALANCE
DATE	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $	UNITS	RATE	AMOUNT $
Balance Oct1	1800	40	72000
Purchasse	4200	42	176400
TOTAL	6000	41.4	248400	4850	41.4	200790	1150	41.4	47610
Income Statement
				FIFO	LIFO	Average
Sales revenue (4850 units @ 80)				388000	388000	388000
Less: Cost of Goods sold				200100	202400	200790
Gross margin				187900	185600	187210
Less: Operating expense				95500	95500	95500
Net income				92400	90100	91710
Less: Income tax				27720	27030	27513
Net income after tax				64680	63070	64197
req 2-a
FIFO increase income from operations
Req 2-b:
LIFO minimize income tax.
Req 3-a:
LIFO increase income from operations.
Req 3-b:
FIFO minimize income tax