Instructions

Prepare a condensed income statement for the year on both bases for comparative purposes.

E$7\mathrm{.}16($LO $3)($FIFO and LIFO Effects$)$ You are the vice president of finance of Sandy Alomar Corporation, a retail company that prepared two different schedules of gross margin for the first quarter ended March $31,2025.$ These schedules appear below.

$\backslash$table$[[,$Sales $($$$5$ per unit$),$Cost of Goods Sold,Gross Margin$],[$Schedule $1,$$$150,000,$$$124,900,$$$25,100],[$Schedule $2,150,000,129,400,20,600]]$

The computation of cost of goods sold in each schedule is based on the following data.

$\backslash$table$[[,$Units,Cost per Unit,Total Cost$],[$Beginning inventory, January $1,10,000,$$$4\mathrm{.}00,$$$40,000],[$Purchase$,$ January $10,8,000,4\mathrm{.}20,33,600],[$Purchase$,$ January $30,6,000,4\mathrm{.}25,25,500],[$Purchase$,$ February $11,9,000,4\mathrm{.}30,38,700],[$Purchase$,$ March $17,11,000,4\mathrm{.}40,48,400]]$

Jane Torville, the president of the corporation, cannot understand how two different gross margins can be computed from the same set of data. As the vice president of finance, you have explained to Ms$.$ Torville that the two schedules are based on different assumptions concerning the flow of inventory costs, i$.$e$.,$ FIFO and LIFO. Schedules $1$ and $2$ were not necessarily prepared in this sequence of cost flow assumptions.