Question

Required information [The following information applies to the questions displayed below.] The following information pertains to the inventory of Parvin Company during Year 2: Jan. 1 Apr. 1 Oct. 1 Beginning Inventory Purchased Purchased 700 units @ $ 31 2,600 units @ $ 36 900 units @ $ 39 During Year 2, Parvin sold 3,900 units of inventory at $85 per unit and incurred $44,500 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 40 percent income tax rate. Parvin started the period with cash of $81,000, inventory of $21,700, common stock of $56,000, and retained earnings of $46,700.

Answer 1

PRAVIN COMPANY

Income Statements

For the Year Ended December 31, Year 2

FIFO
Sales (3,900 units * $85)		$331,500
Cost of goods sold:
From beginning inventory (700 units * $31)	21,700
From 4/1 purchase (2,600 units * $36)	93,600
From 10/1 purchase (600 units * $39)	23,400
Cost of goods sold		138,700
Gross profit		192,800
Operating expenses		44,500
Income before tax		148,300
Income tax expense		59,320
Net income		$88,980
LIFO
Sales (3,900 units * $85)		$331,500
Cost of goods sold:
From beginning inventory (400 units * $31)	12,400
From 4/1 purchase (2,600 units * $36)	93,600
From 10/1 purchase (900 units * $39)	35,100
Cost of goods sold		141,100
Gross profit		190,400
Operating expenses		44,500
Income before tax		145,900
Income tax expense		58,360
Net income		$87,540

Working :

Units sold under FIFO = 700 units from beginning inventory + 2,600 units from 4/1 purchase + 600 units from  10/1 purchase

Units sold under LIFO = 900 units from  10/1 purchase + 2,600 units from 4/1 purchase + 400 units from beginning inventory