Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow (P7-3) At the end of January of the current year, the records of New Ridge Company showed the following for a particular item that sold at $16 per unit: Units Transactions Inventory, January 1 Purchase, January 12 Purchase, January 26 Sale Sale 120 380 200 (100) Amount $ 960 3,420 2,200 (140) Required: 1. Assuming the use of a periodic inventory system, prepare a summarized income statement through gross profit for January under each method of inventory: (a) weighted average cost, (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 pur chase. Show the inventory computations (including for ending inventory) in detail. 2. Of FIFO and LIFO, which method results in the higher pretax income? Which method results in the higher EPS? 3. Of FIFO and LIFO, which method results in the lower income tax expense? Explain, assuming a 30 percent average tax rate. 4. Of FIFO and LIFO, which method produces the more favorable cash flow? Explain