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E7-7 (Algo) Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO LO7-2, 7-3 [The following information applies to the questions displayed below.) Emily
E7-7 (Algo) Analyzing and Interpreting the Financial Statement Effects of LIFO and FIFO LO7-2, 7-3 [The following information applies to the questions displayed below.) Emily Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2: Units 2,910 Unit Cost $ 11 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Sales ($52 each) Operating expenses (excluding income tax expense) 8, 910 7,930 10, 980 12 17 $194, 500 E7-7 Part 1 Required: 1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO. EMILY COMPANY Income Statement For the Year Ended December 31, current year Case A FIFO $ 570,960 Case B LIFO $ 570,960 Sales revenue Cost of goods sold: Beginning inventory Purchases $ $ 32,010 241,730 32,010 241,730 273,740 273,740 Goods available for sale Ending inventory Cost of goods sold Id Gross profit E7-7 Part 2 2. Compute the difference between the pretax income and the ending inventory amount for the two cases. Comparison of Amounts Case A Case B FIFO L IFO Difference Pretax income Ending inventory E7-7 Part 3 3. Which inventory costing method may be preferred for income tax purposes? Which inventory costing method may be preferred for income tax purposes
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