The BooksteinCompany began business on 1/1/2016 when they sold 5000 shares of st

Question

The BooksteinCompany began business on 1/1/2016 when they sold 5000 shares of stock for $46,000 During 2016 Bookstein: a) on 1/13/2016 Bookstein purchased 100 books for $14 each b) on 7/1/2016 Bookstein purchased 400 books for $15 each c) On 10/1/2016 Bookstein purchased 300 books for $16 each On December 31, 2016 a count of the warehouse showed 270 books On average Bookstein sold books for $23 each At the end of the year Booksteinhad no receivables or payables. Booksteinis in the 40% tax rate PART 1: FOR 2016 DETERMINE A) COST OF GOODS SOLD FOR BooksteinIF SHE USES FIFO B) ENDING INVENTORY FOR BooksteinIF SHE USES FIFO C) NET INCOME IF Bookstein USES FIFO (DON'T FORGET ABOUT TAXES) D) ENDING CASH IF Bookstein USES FIFO E) COST OF GOODS SOLD FOR BooksteinIF SHE USES LIFO F) ENDING INVENTORY FOR BooksteinIF SHE USES LIFO G) NET INCOME IF BooksteinUSES LIFO (DON'T FORGET ABOUT TAXES) H) ENDING CASH IF MARY POPPINTS USES LIFO I) HOW MUCH DID BooksteinSAVE BY USING LIFO INSTEAD OF FIFO FOR HER UMBRELLAS The BooksteinCompany began business on 1/1/2016 when they sold 5000 shares of stock for $46,000 During 2016 Bookstein: a) on 1/13/2016 Bookstein purchased 100 books for $14 each b) on 7/1/2016 Bookstein purchased 400 books for $15 each c) On 10/1/2016 Bookstein purchased 300 books for $16 each On December 31, 2016 a count of the warehouse showed 270 books On average Bookstein sold books for $23 each At the end of the year Booksteinhad no receivables or payables. Booksteinis in the 40% tax rate PART 1: FOR 2016 DETERMINE A) COST OF GOODS SOLD FOR BooksteinIF SHE USES FIFO B) ENDING INVENTORY FOR BooksteinIF SHE USES FIFO C) NET INCOME IF Bookstein USES FIFO (DON'T FORGET ABOUT TAXES) D) ENDING CASH IF Bookstein USES FIFO E) COST OF GOODS SOLD FOR BooksteinIF SHE USES LIFO F) ENDING INVENTORY FOR BooksteinIF SHE USES LIFO G) NET INCOME IF BooksteinUSES LIFO (DON'T FORGET ABOUT TAXES) H) ENDING CASH IF MARY POPPINTS USES LIFO I) HOW MUCH DID BooksteinSAVE BY USING LIFO INSTEAD OF FIFO FOR HER UMBRELLAS

Explanation / Answer

In FIFO method stock purchased first sold first hence ending inventor always include stock from last purchases.

a). Cost of Goods Sold in FIFO:-
= (100 * $14) + (400 * $15) + [(300-270)* $16]
= $7880

b). Ending Inventory in FIFO:-
= 270 * $16 = $4320

c). Net Income = Sales - COGS
= (530 units * $23) - $7880
= $12190 - $7880 = $4310
Less Tax 40% = $4310 * 40% = $1724
Net Income after tax = $2586

d). Ending Cash = Opening balance + Sales - Purchases
= $46000 + $12190 - ($7880 + $4320)
= $46000 + $12190 - $12200 = $45990

In LIFO Inventory purchased in last sold first.

e). Cost of Goods Sold = [(400-170) * $15] + (300* $16)
= (230 * 15) + (300*16) = $8250

f). Ending inventory in LIFO = (100 * $14) + (170 * $15)
= $3950

g). Net Income in LIFO = Sales - COGS
= $12190 - $8250 = $3940
Less TAx 40% = $3940 * 40% = $1576
Net Income after tax = $2364

h). Ending Cash In LIFO = It will remain same as in FIFO = $45990

i). Saving is due to less net income in LIFO in comparison of FIFO due to which lower tax has been paid.

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