The following information pertains to the inventory of Parvin Company: During 2016, Parvin sold 2,700 units of

Question:

The following information pertains to the inventory of Parvin Company:

During 2016, Parvin sold 2,700 units of inventory at $90 per unit and incurred $41,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $75,000, inventory of $12,000, common stock of $50,000, and retained earnings of $37,000.
Required
a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method.
b. Prepare income statements using FIFO and LIFO.
c. Determine the amount of income tax that Parvin would pay using each cost flow method.
d. Determine the cash flow from operating activities under FIFO and LIFO.
e. Why is the cash flow from operating activities different under FIFO and LIFO?

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on...