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.

Question

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.

Quizplus · Accepted Answer

The Answer of 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.

Max Company's First Year in Operation Was Year 1