Givoly Inc. uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2:

Required:

1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO. For each case, show the computation of the ending inventory and cost of goods sold. (Hint: Set up adjacent columns for each case.)

2. Compare the pretax income and the ending inventory amounts between the two cases. Explain the similarities and differences.

3. Which inventory costing method may be preferred for income tax purposes? Explain.

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Unit Units Cost Inventory, December 31, prior year 7,000 11 For the current year: Purchase, March 5 19,000 Purchase, September 19 10,000 Sale ($28 each) 8,000 Sale ($30 each) 16,000 Operating expenses (excluding income tax expense) $ 400,000 %24 9,