Futuristic Electronic Center began October with 65 units of merchandise inventory that cost $82 each. During October, the store made the following purchases:
Oct. 3 25 units @ $ 90 each
12 30 units @ $ 90 each
18 35 units @ $ 96 each
Futuristic uses the periodic inventory system, and the physical count at October 31 indicates that 80 units of merchandise inventory are on hand.
3. Which method will result in the lowest income taxes for Futuristic? Why? Which method will result in the highest net income for Futuristic? Why?
LIFO would result in the lowest tax expense. FIFO would result in the highest net income.
Under LIFO the net income would be lowest as the COGS is valued at the current prices. In the given case the gross income under LIFO is lowest at $21,040.
So the income tax would also be the lowest under LIFO.
Under FIFO the COGS is valued at the historical cost. So the value of COGS under this method would be the lowest yielding the highest income.
In the given case the gross margin under FIFO is highest at $21,770.
Nutriset Foods reports merchandise inventory at the lower-of-cost-or-market. Prior to releasing its financial statements for the year ended March 31, 2019, Nutriset’s preliminary income statement, before the year-end adjustments, appears as follows:
Income Statement (Partial)
Year Ended March 31, 2019
Net Sales Revenue $ 118,000
Cost of Goods Sold 47,000
Gross Profit $ 71,000
Nutriset has determined that the current replacement cost of ending merchandise inventory is $19,500. Cost is $24,000.
2. Prepare a revised partial income statement to show how Nutriset Foods should report sales, cost of goods sold, and gross profit.
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