1. In preparing financial statements for year 2018, the financial officer was instructed to use FIFO but failed to do so and instead computed cost of goods sold according to LIFO, which led to a $1,400 overstatement in cost of goods sold from using LIFO. Determine the impact on year 2018s income from the error. Also determine the effect of this error on year 2019s income. Assume no income taxes.

2. Management wants a report that shows how changing from FIFO to another method would change net income. Prepare a table showing (1) the cost of goods sold amount under each of the four methods, (2) the amount by which each cost of goods sold total is different from the FIFO cost of goods sold, and (3) the effect on net income if another method is used instead of FIFO.

3. Compute gross profit earned by the company for each of the four costing methods in part 2. Also, report the inventory amount reported on the balance sheet for each of the four methods.

Specific Identification

• Gross Profit
• Ending Inventory

FIFO

LIFO

Average Costs