The management of Gresa Inc. is evaluating the appropriateness of using its present inventory cost flow method,
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The management of Gresa Inc. is evaluating 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 2020 if either the FIFO or LIFO method has been used. For 2020, the accounting records show these data:
prepare swer LIFO. $747.000 466,000 appropriateness of using its present inventory cost flow method, which is average-cost. The company P6.44 (LO 2) Financial Statement Writing The management of Gresa Inc. is reevaluating the requests your help in determining the results of operations for 2020 if either the FIFO or the Life . : Inventories Purchases and Sales Beginning (7.000 units) $14,000 Total net sales (180,000 units) Ending (17,000 units) Total cost of goods purchased (190,000 units) Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost 50,000 $2.20 $110.000 bar 2 40,000 2.35 94.000 3 40.000 100,000 4 60,000 2.70 162,000 190.000 bahubal oel $466,000 Operating expenses were $130,000, and the company's income tax rate is 40%. Instructions 2.50 a. Prepare comparative condensed income statements for 2020 under FIFO and LIFO. (Show compu- tations 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? ten 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 the actual physical flow of goods? Why? 4. How much more 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 FIFO? Than LIFO? (Note: It is not necessary to quantify your answer.)
Related Book For
International Macroeconomics
ISBN: 9781319218423
5th Edition
Authors: Robert C. Feenstra, Alan M. Taylor
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