The following information pertains to the inventory of Anniola Company:
During 2013, Anniola sold 4,000 units of inventory at $40 per unit and incurred $38,000 of operating expenses. Anniola currently uses the FIFO method but is considering a change to LIFO. All transactions are cash transactions. Assume a 30 percent income tax rate. Anniola started the period with cash of $80,000, inventory of $12,000, common stock of $50,000, and retained earnings of $42,000.
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Required:
a. Record the above transactions in general journal form and post to T-accounts using
(1) FIFO
(2) LIFO. Use a separate set of journal entries and T-accounts for each method.
b. Prepare income statements using FIFO and LIFO.
c. Determine the amount of income tax that Anniola would pay using each cost flow method.
d. Determine the cash flow from operating activities under FIFO and LIFO.
e. Why is the cash flow from operating activities different under FIFO and LIFO?