P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow (AP7-2)LO7-2,7-3At the end of January of the current year, the records of Donner Company showed the following for a particular itemthat sold at $16 per unit:TransactionsInventory, January 1Purchase, January 12Purchase, January 26SaleSaleUnits Amount500 $2,3656003,6001601,280(370)(250)Required:1. Assuming the use of a periodic inventory system, prepare a summarized income statement through gross profit forthe month of January under each method of inventory: (a) average cost (round the average cost per unit to thenearest cent), (b) FIFO, (c) LIFO, and (d) specific identification. For specific identification, assume that the firstsale was selected from the beginning inventory and the second sale was selected from the January 12 purchase.Show the inventory computations in detail.2. Between FIFO and LIFO, which method results in the higher pretax income? Which method results in the higherEPS?3. Between FIFO and LIFO, which method results in the lower income tax expense? Explain, assuming a 30 percentaverage tax rate.4. Between FIFO and LIFO, which method produces the more favorable cash flow? Explain.

Name: P7-3 Evaluating Four Alternative Inventory Methods Based on Income an
Uploaded: 2024-03-20T06:32:37.000Z
Channel: Bartleby
Description: P7-3 Evaluating Four Alternative Inventory Methods Based on Income and Cash Flow (AP7-2)LO7-2,7-3At the end of January of the current year, the records of Donner Company showed the following for a particular itemthat sold at $16 per unit:Transaction