Problem 6-4A The management of Gresa Inc. is reevaluating the appropriateness of
ID: 2518288 • Letter: P
Question
Problem 6-4A The management of Gresa Inc. is reevaluating the appropriateness of using its present inventory cost flow method, which is average-cost. The company requests your help in determining the results of operations for 2017 if either the FIFO or the LIFO method had been used. For 2017, the accounting records show these data Purchases and Sales Total net sales (260,000 units) Total cost of goods purchased (270,000 units) 1,287,000 698,000 $16,000 Beginning (8,000 units) Ending (18,000 units) Purchases were made quarterly as follows. Quarter Units Unit Cost Total Cost $2.40 168,000 2.50 150,000 2.60 156,000 2.80 224,000 $698,000 70,000 60,000 60,000 80,000 270,000 Operating expenses were $150,000, and the company's income tax rate is 40%.Explanation / Answer
CONDENSED INCOME STATEMENT FIFO LIFO Sales revenue 1287000 1287000 Cost of Goods sold Beginning Inventory 16000 16000 Cost of goods purchased 698000 698000 Cost of Goods available for sale 714000 714000 Ending inventory 50400 40000 Cost of Goods sold 663600 674000 Gross Profit/(loss) 623400 613000 Operating expense 150000 150000 Income before income tax 473400 463000 Income tax expense 189360 185200 Net income/(loss) 284040 277800 Req 1: FIFO Req 2: LIFO Req 3: FIFO Req 4: 4160 (Difference in tax) Req 5-a: Lower Req 5-b: Higher