Broadhead Company uses a periodic inventory system. At the end of the annual acc

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: UnitsUnit Cost Inventory, December 31, prior year For the current year: 3,000 $ 9 Purchase, April 11 Purchase, June 1 Sales (S50 each) Operating expenses (excluding income tax expense) 9,000 7,000 10,000 10 15 $195,000 value: Required information 3.00 points Required 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. BROADHEAD COMPANY Income Statement For the Year Ended December 31, current year Case A FIFO Case B LIFO Cost of goods sold Goods available for sale Cost of goods sold

Explanation / Answer

FIFO LIFO Sales revenue 500000 500000 Cost of Goods sold: Beginning Inventory 27000 27000 Purchases April11 90000 90000 Purchases June1 105000 105000 Cost of Goods Available for sale 222000 222000 Less: Ending inventory Beginning Inventory 27000 Purchases April11 20000 60000 Purchases June1 105000 Cost of Goods sold: 97000 135000 Gross margin 403000 365000 Less: Operating expense 195000 195000 Pre-taxx earning 208000 170000 FIFO LIFO Comparison Pretax income 208000 170000 38000 Ending inventory 125000 87000 38000 LIFO is preferential for Income tax purposes

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