Question

Question 2

The management of Blossom Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2020 and 2021. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2020, and that the initial LIFO base would have been the inventory value on December 31, 2019. The following are the company’s financial statements and other data for the years 2020 and 2021 when the FIFO method was employed.

		Financial Position as of
		12/31/19		12/31/20		12/31/21
Cash		$ 111,600		$161,200		$190,960
Accounts receivable		99,200		124,000		148,800
Inventory		148,800		173,600		218,240
Other assets		198,400		210,800		248,000
Total assets		$558,000		$669,600		$806,000
Accounts payable		$ 49,600		$ 74,400		$ 99,200
Other liabilities		86,800		99,200		136,400
Common stock		248,000		248,000		248,000
Retained earnings		173,600		248,000		322,400
Total liabilities and equity		$558,000		$669,600		$806,000

			Income for Years Ended
			12/31/20		12/31/21
Sales revenue			$1,116,000		$1,674,000
Less:	Cost of goods sold		626,200		937,440
	Other expenses		254,200		376,960
			880,400		1,314,400
Income before income taxes			235,600		359,600
	Income taxes (40%)		94,240		143,840
Net income			$141,360		$ 215,760

Other data:

1.		Inventory on hand at December 31, 2019, consisted of 49,600 units valued at $3.00 each.
2.		Sales (all units sold at the same price in a given year):
			2020-186,000 units @ $6.00 each				2021-223,200 units @ $7.50 each
3.		Purchases (all units purchased at the same price in given year):
			2020-186,000 units @ $3.50 each				2021-223,200 units @ $4.40 each
4.		Income taxes at the effective rate of 40% are paid on December 31 each year.

Name the account(s) presented in the financial statements that would have different amounts for 2021 if LIFO rather than FIFO had been used, and state the new amount for each account that is named.

Account		New amount for 2021

	$

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Answer 1

Statement Showing changes in Account if LIFO rather than FIFO at the end of 2021
Detail		Amount
Inventory [49600*3]		$148,800.00
Cost of Goods Sold [ 223200* 4.40]		$982,080.00
Income Tax		$125,984
Net Income		$188,976

		Income for Years Ended
				12/31/21
Sales revenue				$1,674,000
Less:	Cost of goods sold		982,080
	Other expenses		376,960
				1,359,040
Income before income taxes				314,960
	Income taxes (40%)			125,984
Net income				$ 188,976