Required information Exercise 5-6A Income tax effect of shifting from FIFO to LIFO LO 5-1 [The following information applies to the questions displayed below.) The following information pertains to the inventory of Parvin Company during Year 2: Jan. 1 Apr. 1 Oct. 1 Beginning Inventory Purchased Purchased 400 units @ $ 40 2,650 units @ $45 600 units @ $ 48 During Year 2, Parvin sold 3,400 units of inventory at $90 per unit and incurred $49.500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 40 percent income tax rate. Parvin started the period with cash of $91,000, inventory of $16,000, common stock of $66,000. and retained earnings of $41,000. Exercise 5-6A Part b b. Prepare income statements using FIFO and LIFO. X Answer is not complete. PARVIN COMPANY Income Statements For the Year Ended December 31, Year 2 FIFO Sales $ 306,000 Cost of goods sold: From beginning inventory ~ $ 16,000 From 10/1 purchase From 4/1 purchase Cost of goods sold 16,000 Gross profit 290,000 Operating expenses 49,500 Income before tax 240,500 Income tax expense Net income $ 240.500 LIFO Sales Cost of goods sold: From beginning inventory From 10/1 purchase From 4/1 purchase Cost of goods sold Gross profit Operating expenses Income before tax Income tax expense Net income c. Determine the amount of income tax that Parvin would pay using each cost flow method. Income tax paid using FIFO Income tax paid using LIFO d. Determine the cash flow from operating activities under FIFO and LIFO. (Amounts to be deducted should be indicated with minus sign.) L IFO Parvin Company Cash Flows from Operating Activities FIFO Cash flows from operating activities: Cash inflow from customers Cash outflow for inventory Cash outflow for operating expenses Cash outflow for income tax expense Net cash flow from operating activities $