P6-4B The management of Patel Co. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. They request your help in determining the results of operations for 2017 if either the FIFO method or the LIFO method had been used. For 2017, the accounting records show the following data. Inventories Beginning (15,000 units)....$32,000 Ending (28,000 units) Purchases and Sales Total net sales (217,000 units)..... $865,000 Total cost of goods purchased Purchases were made quarterly as follows. (230,000 units). 600,000 Quarter 1 2 Units Unit Cost Total Cost 60,000 $2.40 $144,000 50,000 2.50 125,000 34 50,000 70.000 2.70 2.80 135,000 196.000 $600.000 230.000 Operating expenses were $147,000, and the company's income tax rate is 34%. Instructions (a) Prepare comparative income statements for 2017 under FIFO and LIFO. (Show computations of ending inventory.) (b) Answer the following questions for management. (1) Which cost flow method (FIFO or LIFO) produces the more meaningful inventory amount for the balance sheet? Why? (2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? Why? (3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual physical flow of the goods? Why? (4) How much additional cash will be available for management under LIFO than under FIFO? Why? (5) Will gross profit under the average-cost method be higher or lower than (i) FIFO and (ii) LIFO? (Note: It is not necessary to quantify your answer.) Working Papers Prob 6-4B Patel Co. Condensed Income Statement For the Year Ended December 31, 2017 FIFO LIFO Sales Revenue 865,000 865,000 Cost of Goods Sold Beginning Inventory 32,000 32,000 Cost of Goods Purchased 600,000 600,000 Cost of Goods Available for Sale 632,000 632,000 Ending Inventory Cost of Goods Sold Gross Profit Operating Expenses 147,000 147,000 Income Before Income Taxes Income Tax Expense (34%) 55,896 50,728 Net Income 108,504 98,472 Below - Indicate ONE- either FIFO or LIFO as your answer. (b) (1)... The FIFO or LIFO method produces the most meaningful inventory amount for the balance sheet because: (b) (2)... The FIFO or LIFO method produces the most meaningful net income because: (b) (3) ... The FIFO or LIFO method is most likely to approximate actual physical flow of the inventory because: (b) (4) There will be additional cash available under LIFO because: (b) (5) Gross profit under the average cost method will be higher than FIFO or LIFO and conversely will be lower than FIFO or LIFO method