E78 Evaluating the Effects of Inventory Methods on Income fr

E7-8 Evaluating the Effects of Inventory Methods on Income from Operations, Income Taxes, and Net Income (Periodic) [LO 7-3]

Courtney Company uses a periodic inventory system. The following data were available: beginning inventory, 1,800 units at $40; purchases, 4,200 units at $42; operating expenses (excluding income taxes), $95,500; ending inventory per physical count at December 31, 1,150 units; sales price per unit, $80; and average income tax rate, 30%.

Prepare income statements under the FIFO, LIFO, and weighted average costing methods. (Do not round intermediate calculations. Round your final answers to the nearest dollar amount.)

          

          

Between FIFO and LIFO, which method is preferable in terms of maximizing income from operations, if costs are rising?

Between FIFO and LIFO, which method is preferable in terms of minimizing income taxes, if costs are rising?

Between FIFO and LIFO, which method is preferable in terms of maximizing income from operations, if costs are falling?

LIFO

Between FIFO and LIFO, which method is preferable in terms of minimizing income taxes, if costs are falling?

Courtney Company uses a periodic inventory system. The following data were available: beginning inventory, 1,800 units at $40; purchases, 4,200 units at $42; operating expenses (excluding income taxes), $95,500; ending inventory per physical count at December 31, 1,150 units; sales price per unit, $80; and average income tax rate, 30%.

Solution

Req 1 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC FIFO METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 1800 40 72000 1800 40 72000 Purchasse 4200 42 176400 3050 42 128100 1150 42 48300 TOTAL 6000 248400 4850 200100 1150 48300 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC LIFO METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 1800 40 72000 650 40 26000 1150 40 46000 Purchasse 4200 42 176400 4200 42 176400 TOTAL 6000 248400 4850 202400 1150 46000 STATEMENT SHOWING INVENTORY RECORD UNDER PERIODIC WEIGHTED AVERAGE METHOD RECIEPTS COST OF GOODS SOLD BALANCE DATE UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ UNITS RATE AMOUNT $ Balance Oct1 1800 40 72000 Purchasse 4200 42 176400 TOTAL 6000 41.4 248400 4850 41.4 200790 1150 41.4 47610 Income Statement FIFO LIFO Average Sales revenue (4850 units @ 80) 388000 388000 388000 Less: Cost of Goods sold 200100 202400 200790 Gross margin 187900 185600 187210 Less: Operating expense 95500 95500 95500 Net income 92400 90100 91710 Less: Income tax 27720 27030 27513 Net income after tax 64680 63070 64197 req 2-a FIFO increase income from operations Req 2-b: LIFO minimize income tax. Req 3-a: LIFO increase income from operations. Req 3-b: FIFO minimize income tax