The management of Tamarisk, Inc. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2020, the accounting records provide the following data.

Inventory, January 1 (19,500 units) $87,750
Cost of 195,000 units purchased 1,037,400
Selling price of 156,000 units sold 1,365,000
Operating expenses 132,000
Units purchased consisted of 68,250 units at $5.10 on May 10; 68,250 units at $5.30 on August 15; and 58,500 units at $5.60 on November 20. Income taxes are 30%.

Prepare comparative condensed income statements for 2020 under FIFO and LIFO.

Net Income  (FIFO) 304815  (LIFO)  276150  

Explanation:

Tamarisk, Inc.

Comparative Income Statement

                                                       FIFO                    LIFO

Sales                                              1,365,000         1,365,000  

Cost of Goods Sold                     797550                   838500

Gross Profit                                   567450                 526,500

Operating expenses                    132,000                 132,000

NEt Income Before Tax              4355350                394500

Income Tax (30%)                          130365                  118350

Net Income                                     304815                276150  

If we analyze we see that the Gross Profit under LIFO is less as LIFO COGS is more. Similarly tax under LIFO is Less as compared to FIFO Tax because the income for FIFO is more as compared to LIFO.

Working

Units                  Purchases                                   Total Cost

Beginning Inventory 19,500 units at$4.5          $87,750

May 10              68,250 units at $5.10  ;                348075  

August 15          68,250 units at $5.30  ;              361725

November 20     58,500 units at $5.60  ;            327600

IF FIFO is used then COGS= 68,250 units at $5.10+  68,250 units at $5.30+ 19,500 units at $4.50 =  348075   + 361725+ 87750= 797550

If LIFO is used Then COGS is =58,500 units at $5.60+ 68,250 units at $5.30 +29,250 units at $5.10=  327600+ 361725+149175= 838500

Selling price of 156,000 units sold 1,365,000  

Sale Unit Price    =        1,365,000   / 156,000=$ 8.75

Cost of 195,000 units purchased 1,037,400

Operating expenses 132,000

Income taxes are 30%.

the answer would be voluntary exchange -

"the act of buyers and sellers freely and willingly engaging in market transactions. moreover, transactions are made in such a way that both the buyer and the seller are better off after the exchange than before it occurred."

hope this : )

-shy