Question

Required information The following information applies to the questions displayed below.) Daniel Company uses a periodic inventory system. Data for the current year: beginning merchandise inventory (ending Inventory December 31, prior year), 2.000 units at $38: purchases, 8,000 units at $40; expenses (excluding income taxes). $184,500; ending inventory per physical count at December 31, current year, 1.800 units, sales 8.200 units: sales price per unit, $75and average income tax rate, 30 percent. 3. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (income taxes paid (cash flow), assuming that prices were falling? Not income Income taxes paid (cash flow)

Answer 1

FIFO
particular	unit	unit cost	total
beginning inventory	2,000	38	76,000
purchase	8,000	40	3,20,000
goods available for sale	10,000		3,96,000
cost of goods sold (FIFO):
beginning inventory	2,000	38	76,000
purchase	6,200	40	2,48,000
cost of goods sold (FIFO)	8,200		3,24,000
ending inventory	1,800		72,000

income statement (FIFO)
particular	amount
sale (8,200 x 75)	6,15,000
less: cost of goods sold	3,24,000
gross profit	2,91,000
expense	1,84,500
income before tax	1,06,500
income tax (30%)	31950
net income	74,550

LIFO
particular	unit	unit cost	total
beginning inventory	2,000	38	76,000
purchase	8,000	40	3,20,000
goods available for sale	10,000		3,96,000
cost of goods sold (LIFO):
beginning inventory	8,000	40	3,20,000
purchase	200	38	7,600
cost of goods sold (LIFO)	8,200		3,27,600
ending inventory	1,800		68,400

income statement (LIFO)
particular	amount
sale (8,200 x 75)	6,15,000
less: cost of goods sold	3,27,600
gross profit	2,87,400
expense	1,84,500
income before tax	1,02,900
lncome tax (30%)	30870
net income	72,030

In terms of net income FIFO method is preferable and in terms of income tax LIFO method is preferable.