Case 1. (Learning Objectives 1, 2: Assessing the impact of a year-end purchase of inventory)

Duracraft Corporation is nearing the end of its first year of operations. Duracraft made inventory purchases of $745,000 during the year, as follows:

Sales for the year are 5,000 units for $1,200,000 of revenue. Expenses other than cost of goods sold and income taxes total $200,000. The president of the company is undecided about whether to adopt the FIFO method or the LIFO method for inventories. The income tax rate is 40%.
Requirements 1. To aid company decision making, prepare Income Statements under FIFO and under LIFO.
2. Compare the net income under FIFO with net income under LIFO. Which method produces the higher net income? What causes this difference? Be specific.

Transcribed Image Text:

January 1,000 units @ $100.00 $100,000 July 4,000 121.25 485,000 November 1,000 160.00 160,000 Totals 6,000 $745,000