Business, 04.11.2020 22:00 11132772

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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