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Unformatted text preview: E7-2)Case ACase BCase CNet sales revenue7,950 5,5005,920Beginning inventory11,000 6,500 4,000 Purchases5,000 8,7709,420 Goods available for sale16,00015,270 13,420 Ending inventory10,250 11,220 8,020Cost of goods sold5,7504,0505,400Gross profit2,2001,450520Expenses1,300 1,950520Pretax income$ 900$(500)$ E7-7)1)Case A (FIFO)Case B (LIFO)Net sales revenue440,000 440,000Beginning inventory36,00036,000 Purchases194,000194,000 Goods available for sale230,000230,000 Ending inventory114,00096,000 Cost of goods sold116,000 134,000Gross profit324,000 306,000Expenses195,000 195,000Pretax income$129,000 $111,000Case A: Ending Inventory = $230,000 - [ (3000* $12)+(8000*$10) ] = $114,000Case B: Ending Inventory = $230,000 - [ (8000* $13)+(3000*$10) ] = $96,0002) The pretax income as well as the ending inventory amounts are both greater when the FIFO method was used. This is due to the fact that more of the units were sold from the units purchased on April 11thin the FIFO method. However, in the long run when all of these units in the FIFO method....
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- Fall '06
- Revenue, Generally Accepted Accounting Principles, FIFO and LIFO accounting