Question

Howe, Inc., a Texas crude oil producer, started business on May 1, 2014. It sells all of its production to a single customer at the current spot price for West Texas crude. The customer pays Howe 60% of the selling price on delivery with the remainder to be paid in 10 months. Throughout 2014, the oil spot market price was $28 per barrel; however, on December 31, 2014, the market price jumped to $31 per barrel, where it is expected to remain. Howe’s direct production costs are $12 per barrel, drilling equipment depreciation expense totaled $180,000 for the eight-month period ending December 31, and property taxes of $75,000 were paid during the year. Howe produced 30,000 barrels of oil of which 6,000 barrels were included in January 1, 2015, opening inventory.

Required:
Compute Howe’s 2014 pre-tax income and determine its inventory carrying value and Accounts receivable balance at December 31, 2014, under the following:
1. Production basis.
2. Sales (completed transaction) basis.
3. Installment (cash collection) basis.



$1.99
Sales0
Views102
Comments0
  • CreatedSeptember 10, 2014
  • Files Included
Post your question
5000