Arnold Financial Management believes that the biotechnology industry is a good investment and is considering investing in one of two companies. However, one company, HeartStart, Inc., uses the FIFO method of inventory, and another company, GeneTech, Inc., uses LIFO. The following information about the two companies is available from their annual reports.

The income of the two companies is difficult to compare because GeneTech is a much larger company and uses a different inventory method. To better compare the two companies, Arnold wants you to prepare the following analysis.

Requirements
1. Show the computation of GeneTech€™s cost of goods sold using the LIFO method. Refer to Appendix 6B for an illustration.
2. Prepare summary journal entries for GeneTech€™s purchases of inventory (assume all purchases are on account), sales (assume all are on account), and cost of goods sold. Prepare a T-account for inventory and post these transactions into the T-account.
3. Show the computation of GeneTech€™s cost of goods sold using the FIFO method.
4. Compute the gross profit percentage for both HeartStart and GeneTech using FIFO figures for both.
5. Compute the inventory turnover for both HeartStart and GeneTech using FIFO figures for both.
6. Which company appears stronger? Support youranswer.

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HeartStart, Inc. 2011 2010 Inventory Cost of goods so Sales Net income S101,000 95,000 1,200,000 1,100,000 2,000,000 1,850,000 187,000 190,000 GeneTech, Inc. 2011 2010 Inventory (See Note) Cost of goods so Sales Net income S 330,000 S 300,000 3,900,000 3,800,000 6,700,000 6,400,000 870,000 770,000 Notes to the Financial Statement. If Gene Tech had used the FIFO method, inventory would have been $20,000 higher at the end of 2010 and $22,000 higher at the end of 2011