The following information pertains to the inventory of Parvin Company for Year 3:

During Year 3, 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. Prepare income statements using FIFO and LIFO.
b. Determine the amount of income tax that Parvin would pay using each cost flow method.
c. Determine the cash flow from operating activities under FIFO and LIFO.
d. Why is the cash flow from operating activities different under FIFO and LIFO?

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Jan. 1 Beginning inventory Purchased 400 units @ $30 2,000 units @ $35 600 units @ $38 Apг. 1 Oct. 1 Purchased