Reference no: EM133065252
Question - The following information pertains to the inventory of Moonwalk Co. during Year 2.
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January 1
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Beginning inventory
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400 units @ $30
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April 1
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Purchased
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2,000 units @ $35
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October 1
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Purchased
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600 units @ $38
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In Year 2, Moonwalk Co. sold 2,700 units of inventory at $90 per unit and incurred $41,500 of operating expenses. Moonwalk Co. currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 % income tax rate. Moonwalk Co. started the period with cash of $75,000, inventory of $12,000, common stock of $50,000, and retained earnings of $37,000.
Required - Answer the questions below:
1. Record the given transactions in general journal form and post to T-accounts using (1) FIFO and (2) LIFO. Use a separate set of journal entries and T-accounts for each method.
2. Prepare income statements using FIFO and LIFO.
3. Determine the amount of income tax that Moonwalk Co. would pay using each cost flow method.
4. Determine the cash flow from operating activities under FIFO and LIFO. Why is the cash flow from operating activities different under FIFO and LIFO?