Required information The following information applies to the questions displaye

Question

Required information The following information applies to the questions displayed below.] The following information pertains to the inventory of Parvin Company: Jan. 1 Beginning inventory Apr. Purchased oct. 1 Purchased 500 units $20 2,500 units $25 1,100 units $26 During 2018, Parvin sold 3,485 units of inventory at $42 per unit and incurred $18,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $74,000, inventory of $10,000, common stock of $59,000, and retained earnings of $25,000.

Explanation / Answer

Parvin Company Income Statements For the Year Ended December 31, 2018 FIFO Sales (3485 units x $42 per unit) $146,370 Cost of good Sold: From Beginning Inventory (500 units x $20) $10,000 From 4/1 Purchase (2500 units x $25) $62,500 From 10/1 Purchase (485 units x $26) $12,610 Cost of goods Sold -$85,110 Gross Profit $61,260 Operating Expenses -$18,500 Income Before Tax $42,760 Less: Income Tax @ 30% ($42,760 x 30%) -$12,828 Net Income $29,932 Parvin Company Income Statements For the Year Ended December 31, 2018 LIFO Sales (3485 units x $42 per unit) $146,370 Cost of good Sold: From 10/1 Purchase (1100 units x $26) $28,600 From 4/1 Purchase (2385 units x $25) $59,625 Cost of goods Sold -$88,225 Gross Profit $58,145 Operating Expenses -$18,500 Income Before Tax $39,645 Less: Income Tax @ 30% ($39,645 x 30%) -$11,893.5 Net Income $27,751.5 FIFO LIFO Income Tax $12,828 $11,893.5

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