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The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average- cost. The company requests your
The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average- cost. The company requests your help in determining the results of operations for 2022 if either the FIFO or the LIFO method had been used. For 2022, the accounting records show these data: Inventories Purchases and Sales Beginning (7,000 units) $14,000 Total net sales (180,000 units) $747,000 Ending (17,000 units) Total cost of goods purchased (190,000 units) 466,000 Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 1 50,000 $2.20 $110,000 2 40,000 2.35 94,000 3 40,000 2.50 100,000 4 60,000 2.70 162,000 190,000 $466,000 Operating expenses were $130,000, and the company's income tax rate is 40%. Prepare comparative condensed income statements for 2022 under FIFO and LIFO. Sales Revenues Cost of Goods Sold Beginning Inventory Cost of Goods Purchased Felipe Inc. Condensed Income Statements For the Year Ended December 31, 2022 $ FIFO 747000 $ LIFO 747000 14000 i 14000 i 466000 i 466000 i Cost of Goods Available for Sale 480000 i 480000 i Ending Inventory Cost of Goods Sold Gross Profit/(Loss) Operating Expenses Income before Income Taxes Income Tax Expense Net Income/(Loss) eTextbook and Media Solution $ -45900 i -36000 i 444000 312900 130000 182900 73160 i 109740 $ (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? 444000 303000 130000 173000 69200 i 103800 (2) Which cost flow method (FIFO or LIFO) produces the more meaningful net income? (3) Which cost flow method (FIFO or LIFO) is more likely to approximate the actual physical flow of goods? (4) How much more cash will be available for management under LIFO than under FIFO? $ (5) Will gross profit under the average-cost method be higher or lower than FIFO? Will gross profit under the average-cost method be higher or lower than LIFO? Attempts: 3 of 3 used
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