Question

Ruhe Auto Supplies began operations in 2001. The company’s inventory purchases and sales in the first and subsequent years of operations are as follows:


The company’s federal income tax rate is 30 percent. For the year ended December 31, 2014, Ruhe Auto Supplies generated $3,000,000 in revenues and incurred $800,000 in expenses (exclusive of cost of goods sold). Ruhe Auto Supplies uses the LIFO cost flow assumption to account for inventory.

REQUIRED:
a. Compute ending inventory as of December 31, 2014. Identify the number of units in ending inventory and the costs attached to each unit.
b. Compute the company’s 2014 income tax liability and net income after taxes for the year ended December 31, 2014.
c. Assume that Ruhe Auto Supplies was able to purchase an additional 10,500 units of inventory on December 31, 2014 for $95 per unit. Would you advise the company to purchase these additional units? Explain youranswer.


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  • CreatedAugust 19, 2014
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