Question
At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $17.80
At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $17.80 per unit: Transactions Units Amount Inventory, January 1 700 $2,450 Purchase, January 12 670 3,685 Purchase, January 26 230 1,725 Sale (560) Sale (200) Required:
1a. Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase.
1b. Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: (a) average cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase.
2a. Between FIFO and LIFO, which method would result in the higher pretax income?
2b. Between FIFO and LIFO, which would result in the higher EPS?
3. Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a 20 percent average tax rate.
4. Between FIFO and LIFO, which method would produce the more favorable cash flow? Complete this question by entering your answers in the tabs below.
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