Question

eu School Problem 3 (25 points) Shamrock Inc. sells high-definition televisions and uses a perpetual inventory system. are Shamrock's purchases during July Shown below Purchase Date Unit purchased July 3 July 7 July 25 Total Unit cost 190 195 $205 Total cost $1,710 $2,340 32 $6,305 On July 20, Shamrock Inc. sold 15 units. The other 17 units remained in inventory at July 31 1. Compute the cost of goods sold relating to the sale on July 20 and the ending inventory July 31 using the following cost flow assumptions. (15 points) (Show your solutions, including the number of units and costs per unit) Ending Cost of Inventory Goods Sold a Average cost b FIFO (First-in, first-out) c LIFO (Last-in, first-out) 2. Using the cost figures computed above, answer the following questions: a. Which of the three cost flow assumptions will result in the company reporting the lowest net income for the current year?Would this always be the case? Explain. (5 points) b. Which of the three cost flow assumptions will esult in the highest income tax expense for the year? Would you expect this usually to be the case? Explain. (5 points)

Answer 1

note average cost method answers are rounded ( if not rounded see the answers in the below calculation of part c)to near dollar value so for further clarifications please use comment box

2) a

1) from the above calculations LIFO method will result in reporting the lowest net income for the current year because it has higher cost of goods sold

2)This would always the case ,because LIFO always reports higher cost of goods sold this will result in lower net income

3)if any method reports the higher cost of goods sold it reports lowest net income

b) FIFO cost assumption will always reports highest income tax expense for the year because it reports lowest cost of goods sold so it will get highest net income . if the method provides highest net income for the year you will taxed also highest income tax for the year

working notes