Analyzing and Interpreting Income Manipulation Under the LIFO Inventory Method Pacific Company sells electronic test equipment that it acquires from a foreign source. During the year, the inventory records reflected the following:
Units Unit Cost Total Cost
Beginning inventory 20 $12,000 $240,000
Purchases 42 10,000 420,000
Sales (47 units at $24,500 each)
Inventory is valued at cost using the LIFO inventory method.
Required:
Complete the following income statement summary using the LIFO method and the periodic inventory system (show computations):
PACIFIC CAMPANY
Income Statement
For the Current Year Ended
Sales revenue
Cost of goods sold
Gross profit
Expenses
Pretax income
Ending inventory
2. The management, for various reasons, is considering buying 20 additional units before December 31, 2011, at $9,500 each. Restate the income statement (and ending inventory), assuming that this purchase is made on December 31, 2011.
3. How much did pretax income change because of the decision on December 31, 2011? Assuming that the unit cost of test equipment is expected to continue to decline in 2012, is there any evidence of income manipulation? Explain.