At the end of January 2004. the records of Atlanta Company showed the following for a particular
Question:
At the end of January 2004. the records of Atlanta Company showed the following for a particular item that sold at $18 per unit:
Required: 1. Assuming the use of a periodic inventory system, prepare a summarized income statement through gross profit on sales under each method of inventory:
(a) weighted average cost, (b)
FIFO,
(c) LIFO, and
(d) specific identification. For specific identification, assume that the first sale was out of the beginning inventory and the second sale was out of the January 12 purchase.
Show the inventory computations in detail. 2. Of FIFO and LIFO, which method would result in the higher pretax income? Which would result in the higher EPS? 3. Of FIFO and LIFO, which method would result in the lower income tax expense? Explain, assuming a 30 percent average tax rate. 4. Of FIFO and LIFO, which method would produce the more favorable cash flow? Explain.
Step by Step Answer: