During December Year 2, Crowe Company sold 125 units @ $225 each. Cash selling and administrative expenses for the year were $11,000. All transactions were cash transactions. The following information is also available:Beginning inventory60 units @ $100April 18 purchase90 units @ $115August 5 purchase30 units @ 120The company's income tax rate is 30%.Required:a) Prepare an income statement for Crowe Company for Year 2 assuming:1) FIFO inventory cost flow2) LIFO inventory cost flowb) Prepare the operating activities section of the statement of cash flows for Year 2 assuming:1) FIFO inventory cost flow2) LIFO inventory cost flow
What will be an ideal response?
a) 1)
| FIFO |
| Income Statement |
| For the Year Ended December 31, Year 2 |
| Sales (125 @ $225) | $ 28,125 |
| Cost of goods sold | 13,475 |
| Gross margin | 14,650 |
| Selling and administrative expense | 11,000 |
| Net income before taxes | 3,650 |
| Income tax expense | 1,095 |
| Net income | $ 2,555 |
2)
| LIFO |
| Income Statement |
| For the Year Ended December 31, Year 2 |
| Sales (125 @ $225) | $ 28,125 |
| Cost of goods sold | 14,450 |
| Gross margin | 13,675 |
| Selling and administrative expense | 11,000 |
| Net income before taxes | 2,675 |
| Income tax expense | 803 |
| Net income | $ 1,872 |
b)
1) FIFO
| FIFO |
| Cash Flow from Operating Activities |
| Cash received from sales | $ 28,125 |
| Cash payment for inventory | (13,950) |
| Cash payment for selling and administrative expense | (11,000) |
| Cash payment for income tax expense | (1,095) |
| Net cash flow from operating activities | $ 2,080 |
2) LIFO
| LIFO |
| Cash Flow from Operating Activities |
| Cash received from sales | $ 28,125 |
| Cash payment for inventory | (13,950) |
| Cash payment for selling and administrative expense | (11,000) |
| Cash payment for income tax expense | (803) |
| Net cash flow from operating activities | $ 2,372 |
Cost of goods sold:
Business
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