Pool Corporation, Inc., reported in its recent annual report that In 2010, our industry experienced some price

Pool Corporation, Inc., reported in its recent annual report that “In 2010, our industry experienced some price deflation. . . . In 2011, our industry experienced more normalized price inflation of approximately 2% overall despite price deflation for certain chemical products.” This suggests that in some years Pool’s overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sale data are presented below.

Required:
1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods.
2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)? Answer the question for each item separately.Explain.

Transcribed Image Text:

Inventory Item A Inventory Item B Units Unit Cstnits Unit Cost Transactionn Beginning inventory 0 Purchases, February 7 Purchases, March 16 Sales, April 28 $6 40 80 100 160 $6 80 100 160 3