The management of Patel Co. is reevaluating the appropriateness of using
its present inventory cost flow method, which is average-cost. They request
your help in determining the results of operations for 2019 if either the FIFO
method or the LIFO method had been used. For 2019, the accounting
records show the following data.
Inventories Purchases and
Sales
Beginning (15,000 units) $32,000
Total net sales (217,000 units)
$865,000
Ending (28,000 units)
Total cost of goods purchased
(230,000 units) 600,000
Purchases were made quarterly as follows.
Quarter Units Unit Cost Total Cost
1 60,000 $2.40 $144,000
2 50,000 2.50 125,000
3 50,000 2.70 135,000
4 70,000 2.80 196,000
Total 230,000 $600,000
Operating expenses were $147,000, and the company’s income tax rate is
34%.
Instructions
(a) Prepare comparative condensed income statements for 2019 under
FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management.
(1) Which cost flow method (FIFO or LIFO) produces the more
meaningful inventory amount for the balance sheet? Why?
(2) Which cost flow method (FIFO or LIFO) produces the more
meaningful net income? Why?
Answers: 1
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The management of Patel Co. is reevaluating the appropriateness of using
its present inventory cost...
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