Volata Company began operations on January 1, 2019. In the second quarter of 2020, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company’s interim income statements as originally reported under the LIFO method follow: 2019 2020 1stQ 2ndQ 3rdQ 4thQ 1stQ Sales $ 30,000 $ 32,000 $ 34,000 $ 36,000 $ 38,000 Cost of goods sold (LIFO) 6,000 7,000 7,800 9,000 10,500 Operating expenses 4,000 4,200 4,600 5,000 5,200 Income before income taxes $ 20,000 $ 20,800 $ 21,600 $ 22,000 $ 22,300 Income taxes (25%) 5,000 5,200 5,400 5,500 5,575 Net income $ 15,000 $ 15,600 $ 16,200 $ 16,500 $ 16,725 If the FIFO method had been used since the company began operations, cost of goods sold in each of the previous quarters would have been as follows: 2019 2020 1stQ 2ndQ 3rdQ 4thQ 1stQ Cost of goods sold (FIFO) $ 5,800 $ 6,600 $ 7,200 $ 8,000 $ 9,400 Sales for the second quarter of 2020 are $40,000, cost of goods sold under the FIFO method is $11,000, and operating expenses are $5,400. The effective tax rate remains 25 percent. Volata Company has 1,000 shares of common stock outstanding. Prepare a schedule showing the calculation of net income and earnings per share that Volata reports for the three-month period and the six-month period ended June 30, 2020

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter7: Inventories: Cost Measurement And Flow Assumptions

Section: Chapter Questions

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Volata Company began operations on January 1, 2019. In the second quarter of 2020, it adopted the FIFO method of inventory valuation. In the past, it used the LIFO method. The company’s interim income statements as originally reported under the LIFO method follow:

	2019		2020
	1stQ		2ndQ	3rdQ		4thQ	1stQ
Sales	$	30,000		$	32,000		$	34,000	$	36,000	$	38,000
Cost of goods sold (LIFO)		6,000			7,000			7,800		9,000		10,500
Operating expenses		4,000			4,200			4,600		5,000		5,200
Income before income taxes	$	20,000		$	20,800		$	21,600	$	22,000	$	22,300
Income taxes (25%)		5,000			5,200			5,400		5,500		5,575
Net income	$	15,000		$	15,600		$	16,200	$	16,500	$	16,725

If the FIFO method had been used since the company began operations, cost of goods sold in each of the previous quarters would have been as follows:

	2019		2020
	1stQ		2ndQ	3rdQ		4thQ	1stQ
Cost of goods sold (FIFO)	$	5,800		$	6,600		$	7,200	$	8,000	$	9,400

Sales for the second quarter of 2020 are $40,000, cost of goods sold under the FIFO method is $11,000, and operating expenses are $5,400. The effective tax rate remains 25 percent. Volata Company has 1,000 shares of common stock outstanding.

Prepare a schedule showing the calculation of net income and earnings per share that Volata reports for the three-month period and the six-month period ended June 30, 2020

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