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	Beginning Inventory	750	units	@	$	33
Apr. 1	Purchased	2,700	units	@	$	38
Oct. 1	Purchased	950	units	@	$	41

During Year 2, Parvin sold 4,000 units of inventory at $90 per unit and incurred $45,000 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 $82,000, inventory of $24,750, common stock of $57,000, and retained earnings of $49,750.

a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

c. Determine the amount of income tax that Parvin would pay using each cost flow method.

d. Determine the cash flow from operating activities under FIFO and LIFO. (Amounts to be deducted should be indicated with minus sign.)