The following comparative information is available for Prasad Company for 2012.
|
LIFO
|
FIFO
|
|
Sales revenue
|
$86,000
|
$86,000
|
|
Cost of goods sold
|
38,000
|
29,000
|
|
Operating expenses
|
|
|
|
(including depreciation)
|
27,000
|
27,000
|
|
Depreciation
|
10,000
|
10,000
|
|
Cash paid for inventory purchases
|
32,000
|
32,000
|
Instructions
(a) Determine net income under each approach. Assume a 30% tax rate.
(b) Determine net cash provided by operating activities under each approach. Assume that all sales were on a cash basis and that income taxes and operating expenses, other than depreciation, were on a cash basis.
(c) Calculate the quality of earnings ratio under each approach and explain your findings.