Exercise 5-7A (Algo) Effect of FIFO Versus LIFO on income tax expense LO 5-1 The Brick Company had cash sales of $222,000 for Year 1 , its first year of operation. On April 2, the company purchased 205 units of inventory at $195 per unit. On September 1, an additional 154 units were purchased for $215 per unit. The company had 70 units on hand at the end of the year. The company's income tax rate is 40 percent. All transactions are cash transactions. Required a. The preceding paragraph describes five accounting events: (1) a sales transaction, (2) the first purchase of inventory, (3) a second purchase of inventory, (4) the recognition of cost of goods sold expense, and (5) the payment of income tax expense. Show the amounts of each event in horizontal statements models, assuming first a FIFO and then a LIFO cost flow. b. Compute net income using FIFO. c. Compute net income using LIFO. e. Which method, FIFO or LIFO, produced the larger amount of assets on the balance sheet
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