Question

Required information

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Emily 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			Unit Cost
Inventory, December 31, prior year				2,840			$	14
For the current year:
Purchase, April 11				8,840				15
Purchase, June 1				7,940				20
Sales ($53 each)				10,910
Operating expenses (excluding income tax expense)	$	188,000

Required:

1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO.

LIFO. EMILY COMPANY Income Statement For the Year Ended December 31, current year Case A FIFO $ 578,230 Case B LIFO $ 578,230 Sales revenue Cost of goods sold: Beginning inventory Purchases $ $ 39,760 291,400 39,760 291,400 331,160 Goods available for sale Ending inventory 331,160 218,200 Cost of goods sold Gross profit Operating expenses Pretax income

Answer 1

EMILY COMPANY Income Statement For The Year Ended December 31, current year
	Case A		Case B
	FIFO		LIFO
Sales revenue		$578,230		$578,230
Cost of goods sold:
Beginning inventory	$39,760		$39,760
Purchases	291,400		291,400
Goods available for sale	331,160		331,160
Ending inventory	-170,350 ($158,800+770*$15)		-127,810 ($39,760+5,870*$15)
Cost of goods sold		160,810		203,350
Gross profit		417,420		374,880
Operating expenses		188,000		188,000
Pretax income		$229,420		$186,880

Ending inventory units = 19,620 - 10,910 = 8,710