Givoly Incorporated 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: Inventory, December 31, prior year For the current year: Purchase, March 5 Purchase, September 19 Units 7,100 $ 401,000 19,100 10,100 8,100 16,100 Unit Cost $9 Sale ($29 each) Sale ($31 each) Operating expenses (excluding income tax expense) Required: 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. 7 3 2. Compute the difference between the pretax income and the ending inventory amounts for the two cases. 3. Which inventory costing method may be preferred for income tax purposes?

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…