Question

[The following information applies to the questions displayed below.] Broadhead Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2: Units 2,850 Unit Cost $ 13 Inventory, December 31, prior year For the current year: Purchase, April 11 Purchase, June 1 Sales ($53 each) Operating expenses (excluding income tax expense) 8,840 7,820 10,860 11 16 $186,500 2. Compute the difference between the pretax income and the ending inventory amount for the two cases. Comparison of Amounts Case A Case B FIFO LIFO Difference Pretax income Ending inventory

Answer 1

Comparision of Amounts Case A Case B FIFO Difference LIFO Pretax Income $ 263,920 $ $ 134,250 230,520 33,400 Ending Inventory 33,400 100,850 Computation of Pretax Income FIFO LIFO Sales Cost of Goods Sold Beginning Inventory Add: Purchases Less : Ending Inventory Cost of Goods Sold Gross Margin Less : Operating expenses (A) 575,580 575,580 (B) 37,050 $ 222,360 $ (134,250) $ 125,160 $ 450,420 $ (186,500) $ 37,050 222,360 (100,850) $ 158,560 (A-B) 417,020 (186,500) Pretax Income 263,920 230,520

Working Notes Ending Inventory Units 2850+ 8840+7820-10860 Units 8650 Beginng inventory 2850* 13 37,050 Total purchaes =(8840 * $ 11)+ (7820* $16) 222,360 Total Sales 10860 * $ 53 = 575,580 Ending Inventory under First in First out( FIFO) Periodic method Most recent Cost, from purchases, June 1 ( 7820 * $ 16) $ Next recent cost, from Purchases, April 11 (830 * $11) 125,120 9,130 Ending Inventory $ 134,250 Ending Inventory under Last in first out( LIFO), Cost Flow Earliest Cost, from Beginning invenotry( 2850*$13) Next earliest purchases Ending Inventory $ 37,050 |(5800 $11) 63,800 100,850