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P7-3 7-2, 7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow (AP7-2) At the end of January of the current year, the
P7-3 7-2, 7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow (AP7-2) 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: L Transactions Units mount Inventory, January 1 Purchase, January 12 Purchase, January 26 Sale Sale 500 600 160 (370) (250) $2,365 3,600 1,280 Required 1. Assuming the use of a periodic inventory system, prepare a summarized income statement through gross profit for the month of January 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 pur- chase. Round the average cost per unit to the nearest cent. Show the inventory computations in detail 2. of FIFO and LIFO, which method results in the higher pretax income? Which method results in the 3. of FIFO and LIFO, which method results in the lower income tax expense? Explain, assuming a 30 4. Or FIFO and LIFO, which method produces the more fasorable cash flow? Explain higher EPS? percent average tax rate
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