Inventory, January 1 (10,000 units) $ 35,000
Cost of 120,000 units purchased 504,500
Selling price of 100,000 units sold 665,000
Operating expenses 130,000
Prepare comparative condensed income statements for 2008 under FIFO and LIFO. (Show computations of ending inventory.)
(b) Answer the following questions for management in the form of a business letter.
(1) Which inventory cost flow method produces the most meaningful inventory amount for the balance sheet? Why?
(2) Which inventory cost flow method produces the most meaningful net income? Why?
(3) Which inventory cost flow method is most likely to approximate the actual physical flow of the goods? Why?
(4) How much more cash will be available for management under LIFO than under FIFO? Why?
(5) How much of the gross profit under FIFO is illusionary in comparison with the gross profit under LIFO?
The solution explains some questions relating to effects of FIFO and LIFO