IBT has used the LIFO inventory cost flow assumption for five years. As of December 31, f 1995, IBT had 700 items in its inventory, and the $9,000 inventory dollar amount reported on the balance sheet consisted of the following costs. When Purchased Number of Items Cost per Item Total 1992 500 $12 $6,000 1994 200 15 3,000 Total 700 $9,000 During 1996, IBT sold 900 items for $75 each and purchased 350 items at $30 each. Expenses other than the cost of goods sold totaled $20,000, and the federal income tax rate is 30 percent of taxable income. REQUIRED:

a. Prepare IBT’s income statement for the year ending December 31, 1996.

b. Assume that IBT purchased an additional 550 items on December 20, 1996, lor $30 each. Prepare IBT’s income statement for the year ending December 31, 1996.

c. Compare the two income statements, and discuss why it might have been wise tor IBT to purchase the additional items on December 20. Discuss some of the disadvantages ot such a strategy.