Question

The following information pertains to the inventory of Parvin Company during Year 2:

Jan. 1	Beginning Inventory	400	units	@	$	30
Apr. 1	Purchased	2,150	units	@	$	35
Oct. 1	Purchased	600	units	@	$	38

During Year 2, Parvin sold 2,900 units of inventory at $90 per unit and incurred $47,000 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 $86,000, inventory of $12,000, common stock of $61,000, and retained earnings of $37,000.

Exercise 5-6A Part c

c. Determine the amount of income tax that Parvin would pay using each cost flow method.
  

income tax paid using fico
incometax paid using lico

Answer 1

c
Sales	261000	=2900*90
Less: Cost of goods sold FIFO	100550	=(400*30)+(2150*35)+(350*38)
Gross margin	160450
Less: Operating expenses	47000
Income before income tax	113450
Income tax paid using FIFO	34035	=113450*30%
Sales	261000
Less: Cost of goods sold LIFO	102550	=(600*38)+(2150*35)+(150*30)
Gross margin	158450
Less: Operating expenses	47000
Income before income tax	111450
Income tax paid using LIFO	33435	=111450*30%