Explore BrainMass

Explore BrainMass

    Financial Accounting : FIFO and LIFO Applied

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please see the attached file for the fully formatted problems.

    P6-4A The management of Aurora 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 2002 if either the FIFO
    method or the LIFO method had been used. For 2002, the accounting records show the following data.

    Inventories Purchases and Sales
    Beginning (15,000 units) 34,000 Total net sales (225,000 units) $865,000
    Ending (20,000 units) Total cost of goods purchased
    (230,000 units) $591,500

    Purchases were made quarterly as follows.

    Quarter Units Unit Cost Total Cost
    1 60,000 $2.40 $144,000
    2 50,000 2.5 125,000
    3 50,000 2.6 130,000
    4 70,000 2.75 192,500
    230,000 $591,500

    Operating expenses were $147,000 and the company's income tax rate is 32%

    (a) Prepare comparative condensed income statements for 2002 under FIFO and LIFO. (Show computations of ending

    (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?
    (3) Which cost flow method (FIFO or LIFO) is more likely to approximate actual physical flow of the goods? Why?
    (4) How much additional cash will be available for management under LIFO than under FIFO? Why?
    (5) Will gross profit under the average cost method be higher or lower than (a) FIFO and (b) LIFO?
    (Note: It is not necessary to quantify your answer.)

    © BrainMass Inc. brainmass.com May 24, 2023, 1:09 pm ad1c9bdddf


    Solution Summary

    Purchase data is analyzed as it applies to cost flow methods (FIFO and LIFO). The solution is detailed.