20% ooooo AT&T; 8:25 PM edugen.wileyplus.com Problem 6-4A The management of Feli
ID: 2418215 • Letter: 2
Question
20% ooooo AT&T; 8:25 PM edugen.wileyplus.com Problem 6-4A The management of Felipe Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2015 if either the FIFO or the LIFO method had been used. For 2015, the accounting records show these data: Purchases and Sales Inventories Beginning (7,000 units) $14,000 Total net sales (180,000 units) $747,000 Total cost of goods purchased (190,000 units Ending (17,000 units) 466,000 Purchases were made quarterly as follows Quarter Units Unit cost Total cost 50,000 $2.20 $110,000 2 40,000 2.35 94,000 3 40,000 2.50 100,000 60,000 2.70 162,000 190,000 operating expenses were $130,000, and the company's income tax rate is 40%. (a) Prepare comparative condensed income statements for 2015 under FIFO and LIFO. (Show computations of ending inventory.) (Round answers to o decimal places, e.g. 1,250.) Felipe Inc. Condensed Income Statements For the Year Ended December 31, 2015 IFO LIFO sExplanation / Answer
Answer: (a)
Working Note: Valuation of Ending Inventory under FIFO and LIFO
Answer:b1
FIFO Method produces the more meaningful amount for the balance sheet because inventory is valued at latest purchase price.
Answer: b2
LIFO produces the more meaningful net income because the costs of the most recent purchases are matched against sales.
Answer: b3
The FIFO method is most likely to approximate actual physical flow because the oldest goods are usually sold first to minimize spoilage and obsolescence.
Answer: b4
More cash is available under LIFO beacause of Tax Savings under LIFO
Answer : b5
Gross profit under the average cost method will be: (a) lower than FIFO and (b) higher than LIFO.
Working
Inventory valuation under Average method
Particulars FIFO LIFO Sales $7,47,000 $7,47,000 Less: Cost of Goods Sold Beginning Inventory $14,000 $14,000 Cost of goods purchased $4,66,000 $4,66,000 Cost of goods available for sales $4,80,000 $4,80,000 Less: Ending inventory -$45,900 -$36,000 Cost of Goods Sold (COGS) $4,34,100 $4,44,000 Gross Profit: (Sales-COGS) $3,12,900 $3,03,000 Operating Expenses -$1,30,000 -$1,30,000 Earning Before Tax $1,82,900 $1,73,000 Less Tax Expense: 40% -$73,160 -$69,200 Net Income $1,09,740 $1,03,800Related Questions
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