Question

The following information pertains to the inventory of Parvin Company for Year 3: Jan. 1 Beginning inventory 400 units @ $ 19 Apr. 1 Purchased 2,500 units @ $ 24 Oct. 1 Purchased 1,100 units @ $ 25 During Year 3, Parvin sold 3,400 units of inventory at $41 per unit and incurred $18,000 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 $147,900, inventory of $7,600, common stock of $131,000, and retained earnings of $24,500. a) Prepare income statements using FIFO and LIFO. (Round intermediate calculations and final answers to the nearest whole dollar amount.)

Answer 1

1)

Income statement
	LIFO	FIFO
Sales	$ 139,400	$        139,400
(Less:)Cost of goods sold( note 1 and 2)	$    80,100	$           82,700
Gross profit	$    59,300	$           56,700
less:Operating expenses	$    18,000	$           18,000
Profit Before Tax	$    41,300	$           38,700
less:Tax expense	$    12,390	$           11,610
Net profit	$    28,910	$           27,090

Note 1)

					FIFO
		Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit cost	Total Cost	Quantity	Unit cost	Total Cost	Quantity	Unit cost	Total Cost
Beginning	400	$           19	$            7,600	400	$                   19	$                   7,600
1-Apr	2,500	$           24	$          60,000	2,500	$                   24	$                60,000
1-Oct	1,100	$           25	$          27,500	500	$                   25	$                12,500
Ending balance						$                80,100	600	$       25.0	$            15,000

Note 2 )

						LIFO
		Purchases			Cost of Merchandise Sold			Inventory
Date	Quantity	Unit cost	Total Cost	Quantity	Unit cost	Total Cost	Quantity	Unit cost	Total Cost
Beginning	400	$          19	$    7,600
1-Apr	2,500	$          24	$ 60,000	2,300	$          24	$ 55,200
1-Oct	1,100	$          25	$ 27,500	1,100	$          25	$ 27,500
							400	$       19.0	$    7,600
							200	$       24.0	$    4,800
Ending balance						$ 82,700	600		$ 12,400