Question

Required information Esercise 56A Income tox effect of sfing om FiFO te UIFOLO S1 The following information applies to the questions displayed below The following information pertains to the inventory of Parvin Company during Year 2: Jan. 1 Beginning Inventory 55e units $35 Apr. 1 Purchased Oct. 1 Purchased 2,950 units $48 750 units $43 During Year 2, Parvin sold 4,000 units of inventory at $80 per unit and incurred $51,000 of operating expenses. Parvin currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Parvin started the period with cash of $94,000, inventory of $19,250, common stock of $69,000 and retained earnings of $44,250.

Answer 1

Total unit available for sale (550+2950+750)	4,250
Less: unit sold	4,000
Units available in ending inventory	250

Parvin Company
Income statement
For the year ended December 31, Year 2
FIFO
Sales revenue (4000*80)		$        320,000
Cost of goods sold (less)
Beginning inventory	$    19,250
Inventory purchase (Add) ((2950*40)+(750*43))	$ 150,250
Ending inventory (less) (250*43)	$    10,750
Cost of goods sold		$        158,750
Gross profit		$        161,250
Operating expense (less)		$          51,000
Operating Profit		$        110,250
Income tax @ 30% (less) (Operating Profit * 30%)		$          33,075
Net income		$          77,175
LIFO
Sales revenue (4000*80)		$        320,000
Cost of goods sold (less)
Beginning inventory	$    19,250
Inventory purchase (Add) ((2950*40)+(750*43))	$ 150,250
Ending inventory (less) (250*35)	$      8,750
Cost of goods sold		$        160,750
Gross profit		$        159,250
Operating expense (less)		$          51,000
Operating Profit		$        108,250
Income tax @ 30% (less) (Operating Profit * 30%)		$          32,475
Net income		$          75,775