At the end of January 2014, the records of Donner Company

CF Unit4 P7-3 Evaluating Four

P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow LO7-2, 7-3

At the end of January 2014, the records of Donner Company showed the following for a particular item that sold at $16 per unit:

Transactions	Units	Amount
Inventory, January 1, 2014	500	$                    2,365	4.73
Purchase, January 12	600	3,600	6
Purchase, January 26	160	1,280	8
Sale	(370)
Sale	(250)

Required:

1a.  Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the January 12 purchase. (Round unit price to 2 decimal places. Input all amounts as positive values.)

Input areas are shaded.

Required:

2a.  FIFO and LIFO, which method would result in the higher pretax income?

2b. FIFO and LIFO, which would result in the higher EPS?

3  FIFO and LIFO, which method would result in the lower income tax expense? Assume a 30 percent average tax rate.

4   FIFO and LIFO, which method would produce the more favorable cash flow?

TUTORIAL PREVIEW

Average Cost	Cost of Good Available for Sale			Cost of Goods Sold
	# of Units	Cost per Unit	Cost of Goods Available for Sale	# of Units Sold	Cost per Unit	Cost of Goods Sold
Beginning inventory	500		$2,365
Purchases:
January 12, 2014	600		$3,600

File name: P7-3 Donner Company.xlsx  File type: . xlsx  PRICE:$15