Emily Company uses a periodic inventory system. At the end of the annual accounting period, December 31 of the current year, the accounting records provided the following information for product 2: UnitsUnit Cost Inventory, December 31, prior year 2,900 $12 For the current year:
Purchase, April 11 8,860 13 Purchase, June 1 7,890 18 Sales ($59 each) 10,820
Operating expenses (excluding income tax expense)$194,500
1. Prepare a separate income statement through pretax income that details cost of goods sold for (a) Case A: FIFO and (b) Case B: LIFO. EMILY COMPANY Income Statement For the Year Ended December 31, current year Case A FIFO Case Case B LIFO Cost of goods sold: Goods available for sale Cost of goods sold
2. Compute the difference between the pretax income and the ending inventory amount for the two cases. Comparison of Amounts Case A Case B FIFO LIFO Difference Pretax income Ending inventory
3. Which inventory costing method may be preferred for income tax purposes? Which inventory costing method may be preferred for income tax purposes?