Exercise 5-6A Income tax effect of shifting from FIFO to LIFO LO 5-1 The following information applies to the questions displayed below.) The following information pertains to the inventory of Parvin Company during Year 2 Jan. 1 Apr. 1 Oct. 1 Beginning Inventory Purchased Purchased 650 units @ $ 40 2,589 units @ $ 45 850 units @ $ 48 During Year 2, Parvin sold 3,500 units of inventory at $80 per unit and incurred $44,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $80,000, inventory of $26,000, common stock of $55,000, and retained earnings of $51,000. Exercise 5-6A Part b b. Prepare income statements using FIFO and LIFO. PARVIN COMPANY Income Statements For the Year Ended December 31, Year 2 FIFO Cost of goods sold Required information Cost of goods sold 0 0 0 $ 0 LIFO Cost of goods sold Cost of goods sold 0 0 0 S 0 Prey 3 5 Required information Exercise 5-6A Income tax effect of shifting from FIFO to LIFO LO 5-1 [The following information applies to the questions displayed below.] The following information pertains to the inventory of Parvin Company during Year 2: Jan. 1 Apr1 Oct. 1 Beginning Inventory Purchased Purchased 650 units @ $ 40 2,500 units $ 45 850 units @ $ 48 During Year 2, Parvin sold 3,500 units of inventory at $80 per unit and incurred $44,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $80,000, inventory of $26,000, common stock of $55,000, and retained earnings of $51,000. Exercise 5-6A Part c. Determine the amount of income tax that Parvin would pay using each cost flow method. Income tax paid using FIFO Income tax paid using LIFO The following intormation pertains to the inventory of Parvin Company during Year 2 Jan. 1 Apr. 1 Oct. 1 Beginning Inventory Purchased Purchased 650 units @ $ 40 2,500 units e $ 45 850 units e$ 48 During Year 2, Parvin sold 3,500 units of inventory at $80 per unit and incurred $44,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $80,000, inventory of $26,000, common stock of $55,000. and retained earnings of $51,000. Exercise 5-6A Part d d. Determine the cash flow from operating activities under FIFO and LIFO. (Amounts to be deducted should be indicated with me sign.) LIFO Parvin Company Cash Flows from Operating Activities FIFO Cash flows from operating activities Cash inflow from customers Cash outflow for inventory Cash outflow for operating expenses Cash outflow for income tax expense Net cash flow from operating activities S 0 S Exercise 5-14A Estimating ending inventory LO 5-4 A substantial portion of inventory owned by Prentiss Sporting Goods was recently destroyed when the roof collapsed during a rainstorm. Prentiss also lost some of its accounting records. Prentiss must estimate the loss from the storm for insurance reporting and financial statement purposes. Prentiss uses the periodic inventory system. The following accounting information was recovered from the damaged records: Beginning inventory Purchases to date of storm Sales to date of storm $197,180 398,400 604,700 The value of undamaged inventory counted was $97,287. Historically, Prentiss's gross margin percentage has been approximately 21 percent of sales. Required Estimate the following a. Gross margin in dollars. Gross margin