Question

The management of Blue Spruce Corp. 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 (10,000 units) $ 30,000 Cost of 123,000 units purchased 419,000 Selling price of 100,000 units sold 765,000 Operating expenses 121,000 Units purchased consisted of 38,000 units at $3.20 on May 10; 57,000 units at $3.40 on August 15; and 28,000 units at $3.70 on November 20. Income taxes are 28%. (a) Prepare comparative condensed income statements for 2022 under FIFO and LIFO.

Answer 1

Comparative condensed income statements for 2022

LIFO FIFO

Sales 765,000 765,000

Less Cost of Sales (345,400) (327,400)

Gross Profit 419,600 437,600

Less Expenses:

Operating expenses 121,000 121,000

Operating Income before tax 298,600 316,600

Less Income tax (28,608) (88,648)

Operating Income after tax 269,992 227,952

Step-by-step explanation:

Calculation of Cost of Sales - LIFO

Cost of Sales : 28,000 units×$3.70 = 103,600

57,000 units×$3.40 = 193,800

15,000 units×$3.20 = 48,000

Total =345,400

Calculation of Cost of Sales - FIFO

Cost of Sales : 10,000 units×$3.00 = 30,000

38,000 units×$3.20 = 121,600

52,000 units×$3.40 = 175,800

Total = 327,400