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: Units Unit Cost Inventory, December 31, prior year 2,950 $ 12 For the current year: Purchase, April 11 8,960 10 Purchase, June 1 7,990 15 Sales ($58 each) 10,970 Operating expenses (excluding income tax expense) $ 185,500 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.  

2. Compute the difference between the pretax income and the ending inventory amount for the two cases.

(I tried to upload the graph, but it is not posting)

Explanation / Answer

Total Purchase during the year 8960 units @10 89600 7990 units @15 119850 Total Purchase during the year 209450 Total sales(10970 units@58) 636260 Ending units(2950+8960+7990-10970)= 8930 units Valuation of Endng inventory FIFO (7990 units@15+940 UNITS@10) 129250 LIFO (2950 UNITS@12+5980UNITS@10) 95200 Income Statement FIFO LIFO Opening inventory (2950 units@12) 35400 35400 Add: Purchases during the year 209450 209450 Less: Ending inventory 129250 95200 Cost of goods sold 115600 149650 Sales revenue 636260 636260 Gross margin 520660 486610 Less: operating expenses 185500 185500 Net Operating income before tax 335160 301110 Diffrence in Pretax income and ending inventory FIFO LIFO DIFFERENCE Net operating income 335160 301110 34050 Ending inventory 129250 95200 34050

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