Answer:
The correct answer is A.
Explanation:
Giving the following information:
Inventory:
January 1: 5,000 units $9.00
Purchases:
June 18: 4,500 units $8.00
November 8: 3,000 units $7.00
A physical inventory on December 31 shows 2,000 units on hand. Holliday sells the units for $12 each. The company has an effective tax rate of 20%. Holliday uses the periodic inventory method.
Units sold= 10,500
FIFO:
COGS= 5,000*9 + 4,500*8 + 1,000*7= 88,000
Sales= 12*10,500= 126,000
COGS= (88,000)
Gross profit= 38,000
Tax= 38,000*0.2= (7,600)
Net operating income= 30,400
LIFO:
COGS= 3,000*7 + 4,500*8 + 3,000*9= 84,000
Sales= 12*10,500= 126,000
COGS= (84,000)
Gross profit= 42,000
Tax= 42,000*0.2= (8,400)
Net operating income= 33,600
Tax difference= LIFO - FIFO= 8400 - 7600= $800
