The management of Carla Vista Inc. asks for your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2025, the accounting records show the following data. They use the periodic inventory system.
Inventory, January 1 (14,500 units): $43,500
Cost of 123,000 units purchased: $418,700
Selling price of 95,000 units sold: $727,000
Operating expenses: $123,000
Units purchased consisted of:
- 35,000 units at $3.20 on May 10
- 63,000 units at $3.40 on August 15
- 25,000 units at $3.70 on November 20
Income taxes are 26%.
(a) Prepare comparative condensed income statements for 2025 under FIFO and LIFO.
Carla Vista Inc
Condensed Income Statements
For the Year Ended December 31, 2025
FIFO
LIFO
Sales Revenue
$727,000
$727,000
Cost of Goods Sold
Beginning inventory
$43,500
$43,500
Cost of Goods Purchased
$418,700
$418,700
Cost of Goods Available for Sale
$462,200
$462,200
Less: Ending Inventory
$306,700
$155,500
Cost of Goods Sold
$155,500
$306,700
Gross Profit/(Loss)
$571,500
$420,300
Operating Expenses
$123,000
$123,000
Income before Income Taxes
$448,500
$297,300
Income Tax Expense
$116,610
$77,298
Net Income/(Loss)
$331,890
$220,002
