Calculate the tax savings or tax loss

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Question - Big Apple Company's inventory records for year 2013-2014 are as follows:

Year 2013

Number of Units

Cost per Unit

Total Cost

Beginning Inventory

2,300

$2.60

$5,980

First purchase

3,100

2.75

8,525

Second purchase

3,600

2.85

10,260

Third purchase

2,900

2.95

8,555

Fourth purchase

2,400

3.10

7,440

Goods available for sale

14,300

 

$40,760

Units sold during the year

11,000

@5.50

 

 

Year 2014

Number of Units

Cost per Unit

Total Cost

Beginning Inventory

3,300

 

 

First purchase

2,600

3.10

8,060

Second purchase

3,100

3.10

9,610

Third purchase

2,400

3.25

7,800

Fourth purchase

1,900

3.45

6,555

Goods available for sale

13,300

 

 

Units sold during the year

12,000

@5.80

 

Required -

a. Compute the cost of ending inventory and cost of goods sold for 2013 and 2014, using the following inventory costing methods:

(1) FIFO

(2) LIFO

(3) Weighted Average

b. Assuming a corporate income tax rate is 40 percent and switching from FIFO to LIFO to reduce its income tax expense, calculate the tax savings or tax loss this would have made for the year of 2013 and 2014.

Reference no: EM132458687

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