P$7-3($Static$)$ Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow L$07-2,7-3$

At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $$16$

per unit:

Required:

$1$a$.$ Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost,

FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory

and the second sale was selected from the January $12$ purchase.

$1$b$.$ Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: $($a$)$ average

cost$,($b$)$ FIFO, $($c$)$ LIFO, and $($d$)$ specific identification. For specific identification, assume that the first sale was selected from the

beginning inventory and the second sale was selected from the January $12$ purchase.

$2$a$.$ Between FIFO and LIFO, which method would result in the higher pretax income?

$2$b$.$ Between FIFO and LIFO, which would result in the higher EPS?

Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a $20$ percent average tax rate.

Between FIFO and LIFO, which method would produce the more favorable cash flow?

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Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a $20$ percent average tax rate. Can you help answer the tax savings