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Inventory accounting for Bush Company

1.) Clinton, Bush, and Bush Company (CB2) Company uses a periodic inventory system. At the end of the annual accounting period, December 31, 2009, the accounting records provided the following information for product

UNITS UNIT COST
Inventory- 4,000 $12
December 31, 2008

For 2009:
Purchase March 25th 8,000 $10
Purchase May 15th 5,000 $15
Sales ($50 each) 10,000

Operating Expenses (Excluding Income Tax) $100,000

Required:
a. Prepare a separate income statement through pre-tax income that details cost of goods sold for: 1.) Case A: FIFO; 2.) Case B: LIFO. For each case show the computation of the ending inventory.

b. Compare the pretax income and the ending inventory amounts between the two cases.

c. Which inventory costing method would be preferred for income tax purposes? Why?

Solution Preview

Dear student,
Solution is provided in a separate excel file attached.Special notes on choice of method from accounting point of view and for income tax purpose are given as under.
An important principle of accounting is that asset inventory needs to be correctly valued to ensure that the financial statements of the institution are accurate
When physical flow of inventory is actually FIFO the method is more realistic and represent specific ...

Solution Summary

The expert examines inventory accounting for Bush Company.

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