Scoresby Inc. uses a periodic inventory system. At the end of the annual accounting period, December 31, 2006, the accounting records provided the following information for Product 2:

Required: 1. Prepare a separate income statement through pretax income that details cost of goods sold for Cases A and B. For each case, show the computation of the ending inventory. (Hint: Set up adjacent columns for each case.)

a. Case A: FIFO.

b. Case B: LIFO. 2. Compare the pretax income and the ending inventory amounts between the two cases. Explain the similarities and differences. 3. Which inventory costing method may be preferred for income tax purposes? Explain.

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Transactions a. Inventory, December 31, 2005 For the year 2006: b. Purchase, March 5 c. Purchase, September 19 Units Unit Cost 6,000 $ 8 19,000 9 10,000 11 d. Sale, April 15 ($29 each) 8,000 e. Sale, October 31 ($31 each) 16,000 f. Operating expenses (excluding income tax expense), $500,000