Describe the relative effects on income taxes

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Reference no: EM132091239

Question: Choosing LIFO versus FIFO When Costs Are Rising and Falling Use the following information to complete this exercise: sales, 550 units for $12,500; beginning inventory on January 1 of 300 units; purchases of 100 units on February 18, and 300 units on September 14; sales of 300 units on June 5, and 250 units on October 22; and operating expenses of $4,000. Begin by setting up the following table and then complete the requirements that follow.

Required: 1. First use the included information to calculate the cost of goods sold in Situations A through D, and then complete the table for each situation. In Situations A and B (costs rising), assume the following: beginning inventory, 300 units at $12 = $3,600; February and September purchases were made at $13. In Situations C and D (costs falling), assume the opposite; that is, beginning inventory, 300 units at $13 = $3,900; subsequent purchases were made at $12. Use perpetual inventory procedures.

2. Describe the relative effects on income from operations as demonstrated by requirement 1 when costs are rising and when costs are falling.

3. Describe the relative effects on income taxes for each situation.

4. Would you recommend FIFO or LIFO? Explain.

Reference no: EM132091239

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