Question

Cushinson Corp. had a beginning inventory of $9,500 (250 units) and made three inventory purchases during the fiscal year: Purchases Units Total Cost 3/1/2016 400 $14,800 7/1/2016 450 $14,850 9/1/2016 550 $15,950 The company began operations on Jan. 1, 20X6. Costing uses the LIFO method of determining cost of goods sold. First year sales were 1,300 units. The most likely effects of using LIFO inventory costing as compared to FIFO in Cushinson's 20X6 financial statements are: A) lower net income; lower working capital. B) higher net income; lower working capital. C) higher net income; higher working capital.

Answer 1

Answer:

C) higher net income; higher working capital.

                                          FIFO     LIFO

NET INCOME                   -13200  -10150

WORKING CAPITAL         -13200  -10150

Explanation:

FIFO Purchases Unit cost Unit sales_unit End. Inv. Mon.Cost

Jan-1          9.500 38          250 250               0 9.500

Jan-3         14.800 37          400 100          300 3.700

Jan-7      14.850 33          450           450 0

jan-9      15.950 29          550                  550 0

     

     55.100                1.650         350            1.300  13.200

     

     

LIFO Purchases Unit cost Unit sales_unit End. Inv. Mon.Cost

Jan-1       9.500 38          250 0            250 0

Jan-3      14.800 37          400 0           400 0

Jan-7      14.850 33          450 0           450 0

jan-9      15.950 29          550 350          200 10.150

     

               55.100         1.650 350         1.300 10.150