Reference no: EM13531795

The following comparative information is available for Prasad Company for 2012.

	LIFO	FIFO
Sales revenue	$86,000	$86,000
Cost of goods sold	38,000	29,000
Operating expenses
(including depreciation)	27,000	27,000
Depreciation	10,000	10,000
Cash paid for inventory purchases	32,000	32,000

Instructions

(a) Determine net income under each approach. Assume a 30% tax rate.

(b) Determine net cash provided by operating activities under each approach. Assume that all sales were on a cash basis and that income taxes and operating expenses, other than depreciation, were on a cash basis.

(c) Calculate the quality of earnings ratio under each approach and explain your findings.