Daniel Company uses a periodic inventory system. Data for 2015: beginning mercha
ID: 2763726 • Letter: D
Question
Daniel Company uses a periodic inventory system. Data for 2015: beginning merchandise inventory (December 31, 2014), 2,200 units at $36; purchases, 7,980 units at $38; expenses (excluding income taxes), $194,300; ending inventory per physical count at December 31, 2015, 1,650; sales, 8,530 units; sales price per unit, $77; and average income tax rate, 30 percent.
Compute cost of goods sold and prepare income statements under the FIFO, LIFO, and average cost inventory costing methods. (Do not round your intermediate calculations.)
Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?
Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow), assuming that prices were falling?
Daniel Company uses a periodic inventory system. Data for 2015: beginning merchandise inventory (December 31, 2014), 2,200 units at $36; purchases, 7,980 units at $38; expenses (excluding income taxes), $194,300; ending inventory per physical count at December 31, 2015, 1,650; sales, 8,530 units; sales price per unit, $77; and average income tax rate, 30 percent.
Explanation / Answer
All Amounts in $ 1. Cost of Goods Sold and Income Statement, Valuation Method wise Under FIFO - Cost of Goods Sold Under FIFO - Income Statement Particulars Qty Rate/unit Value $ Sales 656810 Cost of Goods Sold 319740 Opening Inventory 2200 36 79200 Contribution Margin 337070 Purchases 7980 38 303240 Expenses 194300 Cost of Sales -2200 36 -79200 Net Income before Taxes 142770 Cost of Sales -6330 38 -240540 -319740 Tax Impact @ 30% 42831 Closing Inventory 1650 38 62700 Net Income post Taxes 99939 Under LIFO - Cost of Goods Sold Under LIFO - Income Statement Particulars Qty Rate/unit Value $ Sales 656810 Cost of Goods Sold 323040 Opening Inventory 2200 36 79200 Contribution Margin 333770 Purchases 7980 38 303240 Expenses 194300 Cost of Sales -7980 38 -303240 Net Income before Taxes 139470 Cost of Sales -550 36 -19800 -323040 Tax Impact @ 30% 41841 Closing Inventory 1650 36 59400 Net Income post Taxes 97629 Under Weighted Average - Cost of Goods Sold Under Weighted Average - Income Statement Particulars Qty Rate/unit Value $ Sales 656810 Cost of Goods Sold 320453 Opening Inventory 2200 36 79200 Contribution Margin 336357 Purchases 7980 38 303240 Expenses 194300 10180 37.56778 382440 Net Income before Taxes 142057 Cost of Sales -8530 37.56778 -320453 Tax Impact @ 30% 42617 Closing Inventory 1650 269.3496 444426.8 Net Income post Taxes 99440 2. Between FIFO and LIFO, (a) FIFO is preferable in terms of Net Income. (b) LIFO is preferable in terms of Income Taxes. 3. Between FIFO and LIFO, assuming prices were falling, (a) LIFO is preferable in terms of Net Income. (b) FIFO is preferable in terms of Income Taxes.
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