The purchase schedule for Lumbermans and Associates is as follows Date Items Purchased Cost per Item March 15 6,000 $1 30 July 30 9,000 1 50 December 17 7,000 1 60 Total 22,000 The inventory balance as of the beginning of the year was $15,000 (15,000 units at $1), and an inventory count at year end indicated that 11,000 items were on hand Sales and operating expenses (excluding cost of goods sold) totaled $55,000 and $15,000, respectively The federal income tax is 30 percent of taxable income INSTRUCTIONS Prepare three income statements, one under each of the assumptions FIFO, average, and LIFO How many tax dollars would be saved by using LIFO instead of FIFO Assume that the market value of an inventory item dropped to $1 35 as of year end Apply the lower of cost or market (net realizable value) rule, and provide the appropriate journal entry (if necessary) under the FIFO, average, and LIFO assumptions Repeat (a) above assuming that the costs per item were as follows Beginning inventory $1 60 March 15 1 40 July 30 1 30 December 17 1 20 Which of the three assumptions gives rise to the highest net income and ending inventory amounts now Why

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The purchase schedule for Lumbermans and Associates is as follows: Date Items Purchased Cost per Item March 15 6,000 $1.30 July 30 9,000 1.50 December

The purchase schedule for Lumbermans and Associates is as follows:

Date	Items Purchased	Cost per Item
March 15	6,000	$1.30
July 30	9,000	1.50
December 17	7,000	1.60
Total	22,000

The inventory balance as of the beginning of the year was $15,000 (15,000 units at $1), and an inventory count at year-end indicated that 11,000 items were on hand. Sales and operating expenses (excluding cost of goods sold) totaled $55,000 and $15,000, respectively. The federal income tax is 30 percent of taxable income.

INSTRUCTIONS:

Prepare three income statements, one under each of the assumptions: FIFO, average, and LIFO.
How many tax dollars would be saved by using LIFO instead of FIFO?
Assume that the market value of an inventory item dropped to $1.35 as of year-end. Apply the lower-of-cost-or market (net realizable value) rule, and provide the appropriate journal entry (if necessary) under the FIFO, average, and LIFO assumptions.
Repeat (a) above assuming that the costs per item were as follows:

Beginning inventory	$1.60
March 15	1.40
July 30	1.30
December 17	1.20

Which of the three assumptions gives rise to the highest net income and ending inventory amounts now? Why?

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To tackle this problem lets go step by step Step 1 Compute Inventory Costs under Different Methods We will calculate the cost of goods sold COGS and ending inventory under FIFO Average and LIFO invent... blur-text-image