Detailed comparison of various choices for inventory accounting. Hartison Corporation commenced retailing operations on January 1, Year 1. It made purchases of merchandise inventory during Year 1 and Year 2 as follows:

Hartison Corporation sold 1,800 units during Year 1 and 2,800 units during Year 2.

a. Calculate the cost of goods sold for Year 1 using a FIFO cost flow assumption.

b. Calculate the cost of goods sold for Year 1 using a LIFO cost flow assumption.

c. Calculate the cost of goods sold for Year 1 using a weighted-average cost flow assumption.

d. Calculate the cost of goods sold for Year 2 using a FIFO cost flow assumption.

e. Calculate the cost of goods sold for Year 2 using a LIFO cost flow assumption.

f. Calculate the cost of goods sold for Year 2 using a weighted-average cost flow assumption.

g. For the two years taken as a whole, will FIFO or LIFO result in reporting the larger net income? What is the difference in net income for the two-year period under FIFO as compared with LIFO? Assume an income tax rate of 40 percent for both years.
h. Which method, LIFO or FIFO, should Hartison Corporation probably prefer and why?

Transcribed Image Text:

Quantity Purchased Unit Price Acquisition Cost 1/10/Year 1 6/30/Year 1 10/20/Year 1 Total Year 1 1,200 $10 $12,000 700 12 8,400 400 13 5,200 2,300 $25,600 Quantity Purchased Unit Price Acquisition Cost 2/18/Year 2 7/15/Year 2 12/15/Year 2 600 $15 $9,000 1,200 16 19,200 800 18 14,400 Total Year 2... 2,600 $42,600