Question

The management of Windsor, Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2022, the accounting records show these data. Inventory, January 1 (11,500 units) $ 40,250 Cost of 119,000 units purchased 464,300 Selling price of 95,000 units sold 727,000 Operating expenses 130,000 Units purchased consisted of 32,000 units at $3.70 on May 10; 65,000 units at $3.90 on August 15; and 22,000 units at $4.20 on November 20. Income taxes are 30%. (a) Prepare comparative condensed income statements for 2022 under FIFO and LIFO. (Round answers to O decimal places, e.g. 5,125.) Windsor, Inc. Condensed Income Statements For the Year Ended December 31, 2022 , FIFO LIFO Sales 727000 727000 $ Cost of Goods Sold Beginning Inventory 40250 40250 Cost of Goods Purchased 464300 464300 Cost of Goods Avallable for Sale 504550 504550 Less V Ending Inventory 91450 266825 Cost of Goods Sold Gross Profit Operating Expenses 130000 130000 x Income before Income Taxes Income Tax Expense V Net Income / (Loss)

Answer 1

LIFO $727,000 Windsor, Inc. Condensed Income Statements For the Year Ended December 31, 2022 FIFO Sales $727,000 Cost of Goods Sold: Beginning Inventory $40,250 Add: Cost of Goods Purchased $464,300 Cost of Goods Available for Sales $504,550 Less: Cost of Ending Inventory $145,050 Cost of Goods Sold $359,500 Gross Profit $367,500 Operating Expenses $130,000 Income Before Income Taxes $237,500 Income Tax Expense $71,250 Net Income (Loss) $166,250 $40,250 $464,300 $504,550 $129,050 [Ref: Workings] $375,500 $351,500 [Sales - Cost of Goods Sold] $130,000 $221,500 [Gorss Profit - Operating Expenses] $66,450 ($237500 x 30%; $221500 x 30%] $155,050 [Income Before Income Taxes - Income Tax Expense]

FIFO stands for First In First Out which means that cost of goods sold must consider cost of those goods earlier. As a result, ending inventory will contain cost of units recently purchased. LIFO stands for Last In First Out which means that cost of goods sold must consider cost of those goods recently. As a result, ending inventory will contain cost of units initially purchased or beginning inventory. DATA TABLE: Rate Units 11,500 Amount $40,250 [Rate = $40250 / 11500 units = $3.50] $3.50 Beg. Balance Purchases: On May 10 On Aug. 15 On Nov. 20 Available for sale Units sold Ending inventory units $3.70 $3.90 $4.20 32,000 65,000 22,000 130,500 95,000 35,500 $118,400 [32000 units x $3.70] $253,500 (65000 units x $3.90] $92,400 [22000 units x $4.20] $504,550 [130500 - 95000]

Under FIFO: Under LIFO: Ending inventory of 35500 units shall consist of 22000 units from On Nov. 2 & bal. 13500 units from n Aug. 15's purchase as below: Ending inventory of 35500 units shall consist of 11500 units from Beg. Balance & bal. 24000 units from On May 10's purchase as below: From n Aug. 15 purchase From Nov. 20 purchase Cost of Ending inventory Available for sale Cost of Goods Sold $52,650 [13500 units x $3.90] $92,400 [22000 units x $4.20] $145,050 $504,550 [Ref: Data Table] $359,500 ($504550 - $145050] From Beg. Balance From May 10's purchase Cost of Ending inventory Available for sale Cost of Goods Sold $40,250 (11500 units x $3.50] $88,800 [24000 units x $3.70] $129,050 $504,550 [Ref: Data Table] $375,500 [$504550 - $129050]