Prices are rising: The basic data common to all four situations are: sales, 520
ID: 2460886 • Letter: P
Question
Prices are rising:
The basic data common to all four situations are: sales, 520 units for $19,240; beginning inventory, 282 units; purchases, 394 units; ending inventory, 156 units; and operating expenses, $4,000. The income tax rate is 30%.
Income is to be evaluated under four different situations as follows: Required 1. Complete the following tabulation for each situation.. In Situations A and B (prices rising), assume the following: beginning inventory, 282 units at $9 $2,538; purchases, 394 units at $10 $3,940. In Situations C and D (prices falling), assume the opposite, that is, beginning inventory, 282 units at $10 = $2,820; purchases, 394 units at $9 $3,546. Use periodic inventory procedures PRICES RISING PRICES FALLING Situation A Situation B Situation C Situation D FIFO LIFO FIFO LIFO Sales revenue Cost of goods sold Beginning inventory Purchases Goods available for sale Ending inventory Cost of goods sold Gross profit Expenses Pretax income Income tax expense Net income 19,240 $ 19,240 $ 19,240 $ 19,240 2,538 3,940 6,478 1,560 4,918 14,322 4,000 10,322 3,097 7,225 2,538 3,940 6,478 4,000 4,000 4,000Explanation / Answer
Price rising Price falling A B C D FIFO LIFO FIFO LIFO Sales Revenue 19,240 19,240 19,240 19,240 COGS Beg. Inventory 2,538 2,538 2,820 2,820 Purchases 3,940 3,940 3,546 3,546 Goods available for sale 6,478 6,478 6,366 6,366 End. Inventory 1,560 1,733 1,733 1,560 COGS 4,918 4,745 4,633 4,806 Gross Profit 14,322 14,495 14,607 14,434 Expense 4,000 4,000 4,000 4,000 Pretax Income 10,322 10,495 10,607 10,434 Income tax expense 3,097 3,149 3,182 3,130 Net Income 7,225 7,347 7,425 7,304
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