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Palermo Inc. uses the perpetual inventory system. All sales are made on account. The following data are taken from the company’s for the year ended December 31, 2018:
Required:
- Show the journal entries to record the December 21 sale under a) FIFO and b) weighted average inventory cost flow assumptions.
- Calculate the amount of gross profit for the year under FIFO and weighted average inventory cost flow assumptions. Which method matches cost of goods sold more closely with revenues? Why?
- Given your answer to (2), what inventory cost flow assumption would be picked if management wanted to minimize income taxes?
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