Unformatted text preview: P9-29 1. a) FIFO Ending Inventory Units 1500 Ending Inventory Price $24 Cost $36,000 $36,000 Cost of Goods Sold Cost of Goods Available: 148,000 Units Price Cost 1500 $16 $24,000 Goods Sold $24,000 1. b) LIFO Ending Inventory Units 1500 Ending Inventory Price $16 Cost $24,000 $24,000 Cost of Goods Sold Cost of Goods Available: 148,000 Units Price Cost 1500 $30 $45,000 Goods Sold $45,000 2. Sales C.O.G.S. Gross Margin Operating Exp. Net income (no tax) Income Tax Exp. Net income Income Statement FIFO LIFO $180,000 $180,000 $103,000 $124,000 $77,000 $56,000 $40,000 $40,000 $37,000 $16,000 $11,100 $4,800 $48,100 $11,200 Balance Sheet FIFO $60,900 36,000 $96,900 $96,900 LIFO $67,200 24,000 $91,200 $91,200 Cash Inventory Total Assets Owners' Equity 3. The two methods arrive at different results because they are calculating inventories based on different values for the goods. 4. How to best represent the company's worth, how to compensate for inflation, which method makes the company appear more appealing. 5. I would recommend the company use FIFO. This method shows the company has a larger inventory, meaning it has more assets to its name, making it more appealing. 6. Yes, as the inventories are depleted in both methods of accounting, the end balance will arrive at the same solution. Therefore, the difference in profit between the two at any given point cannot be seen as a "profit" of the accounting method, because it will fix itself as it goes. ...
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- Fall '07
- Balance Sheet, Units Price Cost, FIFO Ending Inventory, Ending Inventory Units