Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential

Question:

Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, management wishes to consider all of the effects on the company, including its reported performance, before making the final decision.


The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2025. There are 1,000,000 shares of common stock outstanding as of January 1, 2025, and the cash balance is $400,000.


The company has made the following forecasts for the period 2025–2027.image


Instructions


a. Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2025–2027. Assume the company would begin LIFO at the beginning of 2025.


1. Year-end inventory balances. 


2. Annual net income after taxes.


3. Earnings per share.


4. Cash balance. Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred.


b. Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For  book-img-for-question

Intermediate Accounting

ISBN: 9781119790976

18th Edition

Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield

Question Posted: