Volata Company began operations on January 1, 2023. In the second quarter of 2024, 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:
Accounts202320241st Quarter2nd Quarter3rd Quarter4th Quarter1st QuarterSales$ 30,000$ 32,000$ 34,000$ 36,000$ 38,000Cost of goods sold (LIFO)6,0007,0007,8009,00010,500Operating expenses4,0004,2004,6005,0005,200Income before income taxes$ 20,000$ 20,800$ 21,600$ 22,000$ 22,300Income taxes (25%)5,0005,2005,4005,5005,575Net 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:
Accounts202320241st Quarter2nd Quarter3rd Quarter4th Quarter1st QuarterCost of goods sold (FIFO)$ 5,800$ 6,600$ 7,200$ 8,000$ 9,400
Sales for the second quarter of 2024 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.
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