Question

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 Unit Cost

Inventory, December 31, prior year 2,880 $ 14

For the current year:

Purchase, April 11 8,880 12

Purchase, June 1 7,860 17

Sales ($50 each) 10,960

Operating expenses (excluding income tax expense) $ 193,500

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 amount for the two cases.

Comparison of Amounts

	Case A	Case B
	FIFO	LIFO	Difference
Pretax Income
Ending Inventory

Answer 1

1. Statement Showing Income Statement
	Detail	Case A: FIFO			CaseB: LIFO
		Unit	Unit Rate	Amount	Unit	Unit Rate	Amount
01-Jan	Opening Balance	2880	$14	$40,320	2880	$14	$40,320
11-Apr	Purchase	8880	$12	$106,560	8880	$12	$106,560
01-Jun	Purchase	7860	$17	$133,620	7860	$17	$133,620
	Total Stock	19620		$280,500	19620		$280,500
	Cost of Goods Sold (A)	2880	$14	$40,320	7860	$17	$133,620
		8080	$17	$137,360	3100	$12	$37,200
		10960		$177,680	10960		$170,820
	Closing Inventory Value	800	$12	$9,600	5780	$12	$69,360
		7860	$17	$133,620	2880	$14	$40,320
		8660		$143,220	8660		$109,680
	Sales	10960	$50	$548,000	10960	$50	$548,000
Less	Cost of Good sold ( as per A)	10960		$177,680	10960		$170,820
Less	Operating Expense			$193,500			$193,500
	Pre tax Income			$176,820			$183,680
	2. Comparison of Amounts
		CASE-A FIFO	CASEE-B LIFO	Difference
	Pretax Income	$176,820	$183,680	($6,860)
	Ending Inventory	$143,220	$109,680	$33,540