The board of directors of Sarasota Corporation is considering whether or not it
ID: 2410474 • Letter: T
Question
The board of directors of Sarasota Corporation is considering whether or not it should instruct the accounting department to shift from a first-in, first-out (FIFO) basis of pricing inventories to a last-in, first-out (LIFO) basis. The following information is available.
Prepare a condensed income statement for the year on both bases for comparative purposes.
Sales 20,900 units @ $51 Inventory, January 1 5,700 units @ 20 Purchases 6,200 units @ 22 10,500 units @ 25 7,100 units @ 30 Inventory, December 31 8,600 units @ ? Operating expenses $202,000Explanation / Answer
First-in, first-out
Last-in, first-out
Sales revenue
$1,065,900
$1,065,900
Cost of goods sold:
Inventory, Jan. 1
$114,000
$114,000
Purchases
611,900*
611,900
Cost of goods available
725,900
725,900
Inventory, Dec. 31
(250,500**)
(177,800***)
Cost of goods sold
475,400
548,100
Gross profit
590,500
517,800
Operating expenses
202,000
202,000
Net income
$ 388,500
$ 315,800
*Purchases
6,200 @ $22 =
$136,400
10,500 @ $25 =
262,500
7,100 @ $30 =
213,000
$611,900
**Computation of inventory, Dec. 31:
First-in, first-out:
7,100 units @ $30 =
$213,000
1,500 units @ $25 =
37,500
$250,500
***Last-in, first-out:
5,700 units @ $20 =
$114,000
2,900 units @ $22 =
63,800
$177,800
First-in, first-out
Last-in, first-out
Sales revenue
$1,065,900
$1,065,900
Cost of goods sold:
Inventory, Jan. 1
$114,000
$114,000
Purchases
611,900*
611,900
Cost of goods available
725,900
725,900
Inventory, Dec. 31
(250,500**)
(177,800***)
Cost of goods sold
475,400
548,100
Gross profit
590,500
517,800
Operating expenses
202,000
202,000
Net income
$ 388,500
$ 315,800
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