The management of Felipe Inc. is reevaluating the appropriateness of using its p
ID: 2480594 • Letter: T
Question
The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data:
Inventories
Purchases and Sales
Purchases were made quarterly as follows.
Quarter
Units
Unit Cost
Total Cost
75,000
$153,750
60,000
132,000
60,000
141,000
90,000
229,500
285,000
$656,250
Operating expenses were $130,000, and the company’s income tax rate is 40%.
Inventories
Purchases and Sales
Beginning (10,500 units) $21,000 Total net sales (270,000 units) $1,120,500 Ending (25,500 units) Total cost of goods purchased (285,000 units) 656,250Explanation / Answer
FIFO
Receipts
cost of Goods Sold
Balance
Date
Description
Qty
Rate
Amount
Qty
Rate
Amount
Qty
Rate
Amount
9-Jul
Beg Inventory
10,500
2.00
21,000
Q1
Purchases
75,000
2.05
153,750
Q2
Purchases
60,000
2.20
132,000
Q3
Purchases
60,000
2.35
141,000
Q4
Purchases
90,000
2.55
229,500
Sales
10,500
2.00
21,000
75,000
2.05
153,750
60,000
2.20
132,000
60,000
2.35
141,000
64,500
2.55
164,475
25,500
2.55
65,025
Ending
295,500
677,250
270,000
612,225
25,500
65,025
LIFO
Receipts
cost of Goods Sold
Balance
Date
Description
Qty
Rate
Amount
Qty
Rate
Amount
Qty
Rate
Amount
9-Jul
Beg Inventory
10,500
2.00
21,000
Q1
Purchases
75,000
2.05
153,750
Q2
Purchases
60,000
2.20
132,000
Q3
Purchases
60,000
2.35
141,000
Q4
Purchases
90,000
2.55
229,500
Sales
60,000
2.05
123,000
60,000
2.20
132,000
60,000
2.35
141,000
90,000
2.55
229,500
15,000
2.05
30,750
10,500
2.00
21,000
Ending
295,500
677,250
270,000
625,500
25,500
51,750
FIFO
Particulars
Amount
Net Sales
1,120,500
Less: Cost Of Goods Sold
(612,225)
Gross Profit
508,275
Less :Operating Expenses
130,000
Operating Income
378,275
Less: Tax @ 40%
151,310
Net Income
226,965
LIFO
Particulars
Amount
Net Sales
1,120,500
Less: Cost Of Goods Sold
(625,500)
Gross Profit
495,000
Less :Operating Expenses
130,000
Operating Income
365,000
Less: Tax @ 40%
146,000
Net Income
219,000
LIFO is better low income ,low tax and high cost of Goods Sold
FIFO
Receipts
cost of Goods Sold
Balance
Date
Description
Qty
Rate
Amount
Qty
Rate
Amount
Qty
Rate
Amount
9-Jul
Beg Inventory
10,500
2.00
21,000
Q1
Purchases
75,000
2.05
153,750
Q2
Purchases
60,000
2.20
132,000
Q3
Purchases
60,000
2.35
141,000
Q4
Purchases
90,000
2.55
229,500
Sales
10,500
2.00
21,000
75,000
2.05
153,750
60,000
2.20
132,000
60,000
2.35
141,000
64,500
2.55
164,475
25,500
2.55
65,025
Ending
295,500
677,250
270,000
612,225
25,500
65,025
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