P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow LO7-2, 7-3
At the end of January 2014, the records of Donner Company showed the following for a particular item that sold at $16 per unit:
	Transactions	Units	Amount
	Inventory, January 1, 2014	500	$ 2,365
	Purchase, January 12	600	3,600
	Purchase, January 26	160	1,280
	Sale	(370)
	Sale	(250)
Required:
1a.	Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and 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 purchase. (Round unit price to 2 decimal places. Input all amounts as positive values.)
	Input areas are shaded.
	Average Cost	Cost of Good Available for Sale			Cost of Goods Sold
		# of Units	Cost per Unit	Cost of Goods Available for Sale	# of Units Sold	Cost per Unit	Cost of Goods Sold
	Beginning inventory
	Purchases:
	January 12, 2014
	January 26, 2014
	Total
	FIFO	Cost of Goods Available for Sale			Cost of Goods Sold
		# of Units	Cost per Unit	Cost of Goods Available for Sale	# of Units Sold	Cost per Unit	Cost of Goods Sold
	Beginning inventory	500		$0
	Purchases:
	January 12, 2014	600		$0
	January 26, 2014	160		$0
	Total	1,260		$0	0
	LIFO	Cost of Goods Available for Sale			Cost of Goods Sold
		# of Units	Cost per Unit	Cost of Goods Available for Sale	# of Units Sold	Cost per Unit	Cost of Goods Sold
	Beginning inventory	500
	Purchases:
	January 12, 2014	600
	January 26, 2014	160
	Total	1,260		$ -	0		$ 4,040
	Specific Identification	Cost of Goods Available for Sale			Cost of Goods Sold
		# of Units	Cost per Unit	Cost of Goods Available for Sale	# of Units Sold	Cost per Unit	Cost of Goods Sold
	Beginning inventory	500
	Purchases:
	January 12, 2014	600
	January 26, 2014	160
	Total	1,260		$ -	0
Required:
2a.	FIFO and LIFO, which method would result in the higher pretax income?
2b.	FIFO and LIFO, which would result in the higher EPS?
3	FIFO and LIFO, which method would result in the lower income tax expense? Assume a 30 percent average tax rate.
4	FIFO and LIFO, which method would produce the more favorable cash flow?