At the beginning of 20X5, its first year of business, Marsalis Ltd. invested $ 64,000 in inventory and $ 300,000 in equipment. Total sales were $ 160,000. Of the initial inventory purchases, $ 25,000 remained in inventory at the end of the period. Leflore depreciated the equipment by 20% straight- line, taking a full year’s depreciation in 20X5. The replacement cost of the inventory, both that sold and that remaining in year- end inventory, had decreased by 10% by the end of the year. The replacement cost of the equipment, however, had increased by 3% over the year.

Determine the net income (using only the costs indicated above), under each of the following assumptions:
1. Nominal dollar capital maintenance.
2. Physical capital maintenance.

  • CreatedFebruary 17, 2015
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