Jasper Corporation is nearing the end of its first year of operations. Jasper made inventory purchases of $745,000 during the year, as follows:

Sales for the year are 5,000 units for $1,200,000 of revenue. Expenses other than cost of goods sold and income taxes total $200,000. The president of the company is undecided about whether to adopt the FIFO method or the LIFO method for inventories. The company’s income tax rate is 40%.

Requirements

1. Prepare income statements for the company under FIFO and under LIFO.

2. Compare the net income under FIFO with the net income under LIFO. Which method produces the higher net income? What causes this difference? Be specific.

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1,000 units @ $100.00 = $100,000 4,000 1,000 6,000 January July November Totals 121.25 485,000 160.00 $745,000