Home Gifts Inc. had cash sales of $112,500 for Year 1, its first year of operation. On April 2, the company purchased 150 units of inventory at $180 per unit. On September 1, an additional 200 units were purchased for $200 per unit. The company had 50 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions.

a. The preceding paragraph describes five accounting events: (1) a sales transaction, (2) the fig purchase of inventory, (3) a second purchase of inventory. (4) the recognition of cost of goods sol expense, and (5) the payment of income tax expense. Show the amounts of each event in horizon. statements models like the following ones, assuming first a FIFO and then a LIFO cost flow.

1. Compute net income using FIFO.
2. Compute net income using LIFO.
3. Explain the difference, if any, in the amount of income tax expense incurred using the two costion

assumptions.

c. How does the use of the FIFO versus the LIFO cost flow assumptions affect the statement of cal

Exercise 5-7B Effect of FIFO versus LIFO on income tax expense Home Gifts Inc. had cash sales of \$112,500 for Year 1, its first year of operation. On April 2, the company purchased 150 units of inventory at $180 per unit. On September 1, an additional 200 units were purchased for $200 per unit. The company had 50 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions. Required 4. The preceding paragraph describes five accounting events: (1) a sales transaction. (2) the fite purchase of inventory. (3) a second purchase of inventory, (4) the recognition of cost of g0odswis expense, and (5) the payment of income tax expense. Show the amounts of each event in horizone statements models like the following ones, assuming first a FIFO and then a LIFO cost fow, b. Compute net income using FIFO. c. Compute net income using LIFO. d. Explain the difference, if any, in the amount of income tax expense incurred using the two cot fir assumptions. e. How does the use of the FIFO versus the LIFO cost flow assumptions affect the statement dow flows? Chapter 5 Problem Set? Excicise 78