Courtney Company uses a periodic inventory system. Data for 2014 are as follows: beginning merchandise inventory ( December 31, 2013), 3,000 units at $ 35; purchases, 12,000 units at $ 38; operating expenses ( excluding income taxes), $ 213,000; ending inventory per physical count at December 31, 2014, 2,700 units; sales price per unit, $ 70; and average income tax rate, 30 percent.
Required:
1. Prepare statements of earnings under the FIFO and weighted- average costing methods. Use a format similar to the following:

2. Which method, FIFO or weighted- average cost, is preferable in terms of (a) net earnings and (b) cash flow? Explain.
3. What would be your answer to (2), assuming that prices were falling? Explain.

Transcribed Image Text:

Inventory Costing Method FIFO Statement of Earnings Sales revenue Cost of sales Units Weighted Average Beginning inventory Purchases Cost of goods available for sale Ending inventory Cost of sales Gross profit Expenses (operating) Pretax eamings Income tax expense Net eanings