The management of Blue Spruce Corp. asks your help in determining the comparative effects of the FIFO and LIFO inventory cost flow methods. For 2022, the accounting records show these data. Inventory, January 1 (10,000 units) $ 30,000 Cost of 123,000 units purchased 419,000 Selling price of 100,000 units sold 765,000 Operating expenses 121,000 Units purchased consisted of 38,000 units at $3.20 on May 10; 57,000 units at $3.40 on August 15; and 28,000 units at $3.70 on November 20. Income taxes are 28%. (a) Prepare comparative condensed income statements for 2022 under FIFO and LIFO.

Comparative condensed income statements for 2022

                                                                   LIFO                    FIFO

Sales                                                       765,000             765,000

Less Cost of Sales                                (345,400)            (327,400)

Gross Profit                                             419,600              437,600

Less Expenses:

Operating expenses                               121,000               121,000

Operating Income before tax                298,600             316,600

Less Income tax                                      (28,608)             (88,648)

Operating Income after tax                   269,992             227,952

Explanation:

Calculation of Cost of Sales - LIFO

Cost of Sales : 28,000 units×$3.70 = 103,600

                        57,000 units×$3.40 =  193,800

                        15,000 units×$3.20  =  48,000

Total                                                   =345,400

Calculation of Cost of Sales - FIFO

Cost of Sales : 10,000 units×$3.00 =   30,000

                        38,000 units×$3.20 =  121,600

                        52,000 units×$3.40 =  175,800

Total                                                   =  327,400

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