P6-7B The management of Dains Co. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2008, the accounting records show the fol¬

lowing data.

Inventory, January 1 (10,000 units) $ 37,000 Cost of 110,000 units purchased 479,000 Selling price of 90,000 units sold 630,000 Operating expenses 120,000 Units 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 taxes are 30%.

Instructions

(a) Prepare comparative condensed income statements for 2008 under FIFO and LIFO. (Show computations of ending inventory.)

(b) mmm* Answer the following questions for management.

(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?