Problem:
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 to do:
Q1. 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.
Q2. Compare the pretax income and the ending inventory amounts between the two cases.
Q3. Which inventory costing method would be preferred for income tax purposes? Why?