# Cf unit4 p7-3 at the end of january 2014, the records of donner

CF Unit4 P7-3 Evaluating Four

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P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow LO7-2, 7-3

At the end of January 2014, the records of Donner Company showed the following for a particular item that sold at \$16 per unit:

 Transactions Units Amount Inventory, January 1, 2014 500 \$                    2,365 4.73 Purchase, January 12 600 3,600 6 Purchase, January 26 160 1,280 8 Sale (370) Sale (250)

Required:

1a.  Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. (Round unit price to 2 decimal places. Input all amounts as positive values.)

 Average Cost Cost of Good Available for Sale Cost of Goods Sold # of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold Beginning inventory Purchases: January 12, 2014 January 26, 2014 Total

 FIFO Cost of Goods Available for Sale Cost of Goods Sold # of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold Beginning inventory \$0 Purchases: January 12, 2014 \$0 January 26, 2014 \$0 Total – \$0 0

 LIFO Cost of Goods Available for Sale Cost of Goods Sold # of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold Beginning inventory Purchases: January 12, 2014 January 26, 2014 Total – \$                           – 0 \$                    4,040

 Specific Identification Cost of Goods Available for Sale Cost of Goods Sold # of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold Beginning inventory Purchases: January 12, 2014 January 26, 2014 Total – \$ – 0

Required:

2a.  FIFO and LIFO, which method would result in the higher pretax income?

2b. FIFO and LIFO, which would result in the higher EPS?

3  FIFO and LIFO, which method would result in the lower income tax expense? Assume a 30 percent average tax rate.

4   FIFO and LIFO, which method would produce the more favorable cash flow?

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