Daniel Company uses a periodic inventory system. Data for the current year: beginning merchandise inventory (ending inventory December 31, prior year), 2,020 units at $37; purchases, 7,930 units at $39; expenses (excluding income taxes), $194,100; ending inventory per physical count at December 31, current year, 1,600 units; sales, 8,350 units; sales price per unit, $79; and average income tax rate, 34 percent.
Required
1. Compute cost of goods sold and prepare income statements under the FIFO, LIFO, and average cost inventory costing methods.
Inventory Costing Method
Cost of Goods Sold Units FIFO LIFO Average Cost
Beginning inventory
Purchases
Goods available for sale
Ending inventory
Cost of goods sold
Income Statement FIFO LIFO Average Cost
2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?
Net income
Income taxes paid
3. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow), assuming that prices were falling?
When prices are falling, the opposite effect occursproduces higher net income and less favorable cash flow than does