(Financial Statement Effects of FIFO and LIFO) The management of Tritt Company has asked its accounting department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2012 and 2013. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2012, and that the initial LIFO base would have been the inventory value on December 31, 2011. Presented below are the company’s financial statements and other data for the years 2012 and 2013 when the FIFO method was employed.

Â	Â	Financial Position as of	Â
Â	12/31/11	12/31/12	12/31/13
Cash	$ 90,000	$130,000	$154,000
Accounts receivable	80,000	100,000	120,000
Inventory	120,000	140,000	176,000
Other assets	160,000	170,000	200,000
Total assets	$450,000	$540,000	$650,000
Accounts payable	$ 40,000	$ 60,000	$ 80,000
Other liabilities	70,000	80,000	110,000
Common stock	200,000	200,000	200,000
Retained earnings	140,000	200,000	260,000
Total liabilities and equity	$450,000	$540,000	$650,000

 

Â	Income for Years Ended	Â
Â	12/31/12	12/31/13
Sales revenue	$900,000	$1,350,000
Less: Cost of goods sold	505,000	756,000
Other expenses	205,000	304,000
Â	710,000	1,060,000
Income before income taxes	190,000	290,000
Income taxes (40%)	76,000	116,000
Net income	$114,000	$ 174,000

Other data:

1. Inventory on hand at December 31, 2011, consisted of 40,000 units valued at $3.00 each.

2. Sales (all units sold at the same price in a given year):

2012—150,000 units @ $6.00 each 2013—180,000 units @ $7.50 each

3. Purchases (all units purchased at the same price in given year):

2012—150,000 units @ $3.50 each 2013—180,000 units @ $4.40 each

4. Income taxes at the effective rate of 40% are paid on December 31 each year.

Instructions

Name the account(s) presented in the financial statements that would have different amounts for 2013 if LIFO rather than FIFO had been used, and state the new amount for each account that is named. Show computations.

P8-8 (Dollar-Value LIFO) Norman’s Televisions produces television sets in three categories: portable, midsize, and flat-screen. On January 1, 2012, Norman adopted dollar-value LIFO and decided to use a single inventory pool. The company’s January 1 inventory consists of:

Category	Quantity	Cost per Unit	Total Cost
Portable	6,000	$100	$ 600,000
Midsize	8,000	250	2,000,000
Flat-screen	3,000	400	1,200,000
Â	17,000	Â	$3,800,000

During 2012, the company had the following purchases and sales.

Category	Quantity Purchased	Cost per Unit	Quantity Sold	Selling Price per Unit
Portable	15,000	$110	14,000	$150
Midsize	20,000	300	24,000	405
Flat-screen	10,000	500	6,000	600
Â	45,000	Â	44,000	Â

Instructions

(a) Compute ending inventory, cost of goods sold, and gross profit.

(b) Assume the company uses three inventory pools instead of one. Repeat instruction (a).