The following information pertains to the inventory of the Bryant Company: During the year, Bryant sold 3,500

Question:

The following information pertains to the inventory of the Bryant Company:

During the year, Bryant sold 3,500 units of inventory at $50 per unit and incurred $21,000 of operating expenses. Bryant currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Bryant started the period with cash of $36,000, inventory of $7,500, common stock of $20,000, and retained earnings of $23,500.
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 Bryant would save if it changed cost flow methods.
d. Determine the cash flow from operating activities under FIFO and LIFO.
e. Explain why cash flow from operating activities is lower under FIFO when that cost flow method produced the higher gross margin.

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...