The management oi (reek Co. asks your help in determining the comparative effects of the FIFO and
Question:
The management oi ("reek Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2006, the accounting records show the following data.
nits purchased consisted of 40,000 units at $4.20 on May 10; 50.000 units at $4.40 on August 15; and 20,000 units at $4.55 on November 20. Income laves are 30%.
Instructions
(a) Prepare comparative condensed income statements for 2006 under FIFO and LIFO (Show nputations oi ending inventory |
(b) i iir-™m> Vnswei the following questions for management in the form of a business letter.
(1) Which inventor) cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate actual physical flow of the goods? Why'.'
(4) How much additional cash will be available for management under LIFO than under FIFO? Why?
(5) How much of the gross profit under FIFO is illusory in comparison with the gross profit under LIFO?
Step by Step Answer:
Financial Accounting Text Only
ISBN: 9780006575405
5th Edition
Authors: Jerry J. Weygandt, Donald E. Kieso, Paul D. Kimmel