Fundamentals of Financial Accounting 4th Edition by Fred Phillips,Robert Libby,Patricia Libby

Exercise 40

Evaluating the Effects of Inventory Methods on Income from Operations, Income Taxes, and Net Income (Periodic)
Courtney Company uses a periodic inventory system. Data for 2012: beginning merchandise inventory (December 31, 2011), 1,000 units at $35; purchases, 4,000 units at $38; operating expenses (excluding income taxes), $91,500; ending inventory per physical count at December 31, 2012, 900 units; sales price per unit, $75; and average income tax rate, 30%.
Required:
1. Prepare income statements under the FIFO, LIFO, and weighted average costing methods. Use a format similar to the following:


2. Between FIFO and LIFO, which method is preferable in terms of ( a ) maximizing income from operations or ( b ) minimizing income taxes Explain.
3. What would be your answer to requirement 2 if costs were falling Explain.