Max Company's first year in operation was Year 1. The following inventory purchase information comes from Max's accounting records for the year: 
In December Year 1, Max sold 350 units for $480 each. Operating expenses for the year were $30,000, and the tax rate was 30%. Required: a) Calculate the cost of goods sold using LIFO.b) Calculate the cost of goods sold using FIFO. c) What amount of income tax would Max have to pay if it uses LIFO? d) What amount of income tax would Max have to pay if it uses FIFO? e) Assuming that the results for Year 2 are representative of what Max can generally expect, would you recommend that the company use LIFO or FIFO?
Explain.
What will be an ideal response?
a) $107,360
b) $103,520
c) $9,192
d) $10,344
e) Based on this information, Max would be better off to use LIFO because of the lower amount of income taxes it would pay.
a) For LIFO, cost of goods sold = (90 × $320) + (240 × $304) + (20 × $280) = $107,360
b) For FIFO, cost of goods sold = (120 × $280) + (230 × $304) = $103,520
c) and d)
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Table 3-3
Marlett Company Financial Information December 2009 December 2010 Net Income $2,000 $4,000 Accounts receivable 750 1,250 Accumulated depreciation 1,000 1,400 Common stock 4,500 5500 Paid-in capital 7,500 8500 Retained earnings 1,500 3,500 Accounts payable 750 950 Based on the information in , prepare a statement of cash flows for 2010. Assume that there were no changes in any other asset or liability accounts, and that the ending cash balance for 2009 was $100.