discuss which method fifo or lifo would be preferred for income tax 274343

of appliances at January 1, 2010, purchases invoices during the year, and the inventory

count at December 31, 2010, are summarized as follows:

Inventory,

Purchases Invoices

Inventory Count,

Model January 1 1st 2nd 3rd December 31

BB900 27 at $213 21 at $215 18 at $222 18 at $225 30

C911 10 at 60 6 at 65 2 at 65 2 at 70 4

L100 6 at 305 3 at 310 3 at 316 4 at 317 4

N201 2 at 520 2 at 527 2 at 530 2 at 535 4

Q73 6 at 520 8 at 531 4 at 549 6 at 542 7

Z120 — 4 at 222 4 at 232 — 2

ZZRF 8 at 70 12 at 72 16 at 74 14 at 78 12

Instructions

1. Determine the cost of the inventory on December 31, 2010, by the first in, first out

method. Present data in columnar form, using the following headings:

Model Quantity Unit Cost Total Cost

If the inventory of a particular model comprises one entire purchase plus a portion

of another purchase acquired at a different unit cost, use a separate line for each

purchase.

2. Determine the cost of the inventory on December 31, 2010, by the last in, first out

method, following the procedures indicated in (1).

3. Determine the cost of the inventory on December 31, 2010, by the average cost

method, using the columnar headings indicated in (1).

4. Discuss which method (FIFO or LIFO) would be preferred for income tax

purposes in periods of (a) rising prices and (b) declining prices.