Business finance management
Case 1. Duracraft Corporation is nearing the end of its first year of operations. Duracraft made inventory purchases of $745,000 during the year, as follows:
January 1,000 units @ $100.00 = $100,000
July 4,000 units @ $121.25 = $485,000
November 1,000 units @$160.00 = $160,000
Totals 6,000 units = $745,000
Sales for the year are 5,000 units for $1,200,000 of revenue. Expenses other than cost of goods sold and income taxes total $200,000. The president of the company is undecided about whether to adopt the FIFO method or the LIFO method for inventories. The income tax rate is 40%.
Requirements
To aid company decision making, prepare income statements under FIFO and under LIFO.
Compare the net income under FIFO with net income under LIFO. Which method produces the higher net income? What causes this difference? Be specific.
Case 2. The inventory costing method a company chooses can affect the financial statements and thus the decisions of the people who use those statements.
Requirements
Company A uses the LIFO inventory method and discloses its use of the LIFO method in notes to the financial statements. Company B uses the FIFO method to account for its inventory. Company B does not disclose which inventory method it uses. Company B reports a higher net income than Company A. In which company would you prefer to invest? Give your reason(s).
Representational faithfulness is an accepted accounting concept. Would you want management to be faithful in representing its accounting for inventory if you were a shareholder or a creditor of a company? Give your reason(s).
Instructions
Write a paper of 500-700 words, typewritten in double-spaced format (Arial 12-point font or Times New Roman styles), page margins Top, Bottom, Left Side and Right Side = 1 inch, with reasonable accommodation being made for special situations and online submission variances.
Prepare this assignment according to the APA guidelines, including a title page, an introduction, and a conclusion. An abstract is not required. Cite in text and include a References section.
Your assignment will be automatically submitted to Turnitin. For full credit, make sure that your Similarity Index does not exceed 20%.
