# 5 compare companies that use different inventory

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Evaluate the inventory turnover ratio.#5. Compare companies that use different inventory costing methods. LObj. #1: INVENTORY COSTING METHODSSee Pre-class Worksheet for E7-5Complete the following table for E7-5FIFOLIFOAverage CostCost of Goods SoldInventoryLObj. #2: EVALUATING THE BENEFITS OF FIFO, LIFO, AND AVERAGE COSTBASED ON INCOME AND CASH FLOW EFFECTS
2E7–9:Daniel Company uses a periodic inventory system. Data for 2012: beginning merchandise inventory (December 31, 2011), 2,000 units at \$38; purchases, 8,000 units at \$40; expenses (excluding income taxes), \$194,500; ending inventory per physical count at December 31, 2012, 1,800 units; sales, 8,200 units, sales price per unit, \$75; and average income tax rate, 30%. Requirement 1:Compute the cost of goods sold and prepare the income statements under the FIFO, LIFO, and average costing methods. AverageUnits FIFO LIFO CostCost of goods sold:Beginning inventory @ \$38 2,000 \$ 76,000 76,000 76,000 Purchases @ \$40 8,000 320,000 320,000 320,000Goods available for sale 10,000 396,000 396,000 396,000Ending inventory* 1,800 Cost of goods soldAverageIncome statementFIFO LIFO CostSales revenue (8,200 units @ \$75) \$ 615,000 615,000 615,000Cost of goods Sold Gross profitExpenses194,500 194,500 194,500 Pretax incomeIncome tax expense (30%) Net income\$ *Ending inventory computations:
3FIFO:1,800 units @LIFO:1,800 units @ Average:Requirement 2:Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)? Explain.