At the end of January of the current year, the records of Donner Company showed the following for a particular item that sold at $$15\mathrm{.}20$ per unit:

Transactions Units Amount

Inventory, January $1560$ $$1,792$

Purchase, January $125402,808$

Purchase, January $261401,008$

Sale $(420)$

Sale $(200)$

Required:

$1$a$.$ Assuming the use of a periodic inventory system, compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January $12$ purchase.

$1$b$.$ Assuming the use of a periodic inventory system, prepare a partial income statement under each method of inventory: $($a$)$ average cost, $($b$)$ FIFO, $($c$)$ LIFO, and $($d$)$ specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January $12$ purchase.

$2$a$.$ Between FIFO and LIFO, which method would result in the higher pretax income?

$2$b$.$ Between FIFO and LIFO, which would result in the higher EPS?

$3.$ Between FIFO and LIFO, which method would result in the lower income tax expense? Assume a $20$ percent average tax rate.

$4.$ Between FIFO and LIFO, which method would produce the more favorable cash flow?

Answer rating: 100% (QA)

To solve the given problem lets calculate the cost of goods sold COGS and prepare the partial income statement for each method of inventory average cost FIFO LIFO and specific identification 1a Calcul... View the full answer