B(2). The company currently uses FIFO to account for inventory. However, given t
ID: 2534173 • Letter: B
Question
B(2). The company currently uses FIFO to account for inventory. However, given the adjusted balance of cost of goods sold above and a computed balance of cost of goods sold under the LIFO method of $120,000, what would be the effect on the company's net income if LIFO was used to account for inventory?
COGS (FIFO) Ending Inventory $35,000 ($25,000) (23,750) B(1). The company currently uses FIFO to accounting for inventory. Below are a summary of the transactions for the year: Price per Cumulative Units Unit Units Purchases Jan 1 Beginning Inventory 7,000 $5.00 7,000 Feb Purchase 4,000 $5.50 11,000 $22,000 Mar Sale (5,000) 6,000 Apr Sale (4,500) 1,500 May Purchase 8,000 $6.00 9,500 48,000 June Sale (5,500) 4,000 July Sale (3,500) 500 August Purchase 5,000 $6.25 5,500 31,250 Sept Sale (1,700) 3,800 Oct Sale (1,800) 2,000 Nov Purchase 3,800 5,800 23,750 Dec Sale (4,800) 1,000 Dec 31 $125,000 1 1 1 (32,250) (21,000) (10,500) (11,250) $6.25 (30,000) ($153,750) $6,250Explanation / Answer
Cost of goods sold LIFO method (Given) = $ 120000
Calculation of closing inventory
closing inventory= opening inventory + purchases - cost of goods sold
if using LIFO method,
closing inventory = 35000 + 125000 - 120000
= $ 160000-120000
= $ 40000
Therefore, from this figure we can say that Increase in closing inventory by $ 33750 (i.e. 40000-6250) will lead to increase in gross profit and subsequently an increase in net profit if LIFO method is used.
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.