Income is to be evealuated under four different silusions as follows Prices are rising Situotion A FIFO is used Stuation B LIFO is used a) b) Prices are falling Situction C FIFO is used Situation D LIFO is used 200 unts; and operating expenses. S4,000 The ollowing tabuated Income statements or each The basic data com on or a situations are: 00 units or $15,000: begm ng Inventor300 units; purchases. 400 units: ending i situalion have been set up for analytical purposes. en or 1 Com e e le preceding tab ation for each situation In situation A and B prices rising assume the following begn ng inve to 30 units a S11 = $33,000, purchases 400 urils a $12-$4,800 In Situation C and D prices falling assume the opposite; that is, beginring invertory, 300 units at $12- $3,600, purchases, 400 units at $11- $4,400 Use periodic inventory procedures. 2 Doyourecomend LIFO or FIFO? Explain 3 Analyze the relative effects on pretax income and netincome ad demostrated by question 1, nen prices are rising and when prices are falling. Prices Rising Prices Falling FIFO LIFO FIFO LIFO Sales revenue (500 units) Cost of goods sold Beginning inventory (300 units) Purchases (400 units) Goods available for sale Ending inventory (200 units) Cost of goods sold* (500 units) Gross profit Expenses Pretax income Income tax expense (30%) Net income