Exercise 6-53 Effects of Inventory Costing Methods Jefferson Enterprises has the following income statement data available for 2013: Sales revenue Operating expenses Interest expense Income tax rate $828,600 370,400 42,100 34% Jefferson uses a perpetual inventory accounting system and the average cost method. Jefferson is considering adopting the FIFO or LIFO method for costing inventory. Jefferson's accountant prepared the following data: If FIFO Used If LIFO Used Ending inventory Cost of goods sold If Average Cost Used $ 65,950 399,050 $ 78,500 386,500 $ 40,100 424,900 Required: 1. Compute income before taxes, income taxes expense, and net income for each of the three inventory costing methods. (Round to the nearest dollar.) Average Cost FIFO LIFO Income before taxes 9 V Income tax expense / Tax savings due to loss 9 V 9 V Net income 2. Conceptual Connection: Why are the cost of goods sold and ending inventory amounts different for each of the three methods? What do these amounts tell us about the purchase price of inventory during the year? The input in the box below will not be automatically graded, but may be reviewed and considered by your instructor. blank 3. Conceptual Connection: Which method produces the most realistic amount for net income? For inventory? For net income Select For inventory Select Explain your answer. The input in the box below will not be automatically graded, but may be reviewed and considered by your instructor. Exercise 6-53 Effects of Inventory Costing Methods Jefferson Enterprises has the following income statement data available for 2013: Sales revenue Operating expenses Interest expense Income tax rate $828,600 370,400 42,100 34% Jefferson uses a perpetual inventory accounting system and the average cost method. Jefferson is considering adopting the FIFO or LIFO method for costing inventory. Jefferson's accountant prepared the following data: If FIFO Used If LIFO Used Ending inventory Cost of goods sold If Average Cost Used $ 65,950 399,050 $ 78,500 386,500 $ 40,100 424,900 Required: 1. Compute income before taxes, income taxes expense, and net income for each of the three inventory costing methods. (Round to the nearest dollar.) Average Cost FIFO LIFO Income before taxes 9 V Income tax expense / Tax savings due to loss 9 V 9 V Net income 2. Conceptual Connection: Why are the cost of goods sold and ending inventory amounts different for each of the three methods? What do these amounts tell us about the purchase price of inventory during the year? The input in the box below will not be automatically graded, but may be reviewed and considered by your instructor. blank 3. Conceptual Connection: Which method produces the most realistic amount for net income? For inventory? For net income Select For inventory Select Explain your answer. The input in the box below will not be automatically graded, but may be reviewed and considered by your instructor
