Question

Exercise 5-6A Income tax effect of shifting from FIFO to LIFO LO 5-1

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The following information pertains to the inventory of Parvin Company during Year 2:

Jan. 1	Beginning Inventory	750	units	@	$	33
Apr. 1	Purchased	2,700	units	@	$	38
Oct. 1	Purchased	950	units	@	$	41

During Year 2, Parvin sold 4,000 units of inventory at $90 per unit and incurred $45,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $82,000, inventory of $24,750, common stock of $57,000, and retained earnings of $49,750.

Required
a. Record the above transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

The following information pertains to the inventory of Parvin Company during Year 2.

Giving below FIFO Journal Entries and Ledger and LIFO Journal Entries and Ledger.