Question: Duracraft Corporation is nearing the end of its first year of operations. Duracraft made inventory purchases of $745,000 during the year, as follows:
14 Apr 2023,1:42 PM
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 600-750 words, typewritten in double-spaced format (2-point font), 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.
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