Examine your completed worksheet and answer the following questions: a. Which inventory cost flow assumption produces the
Question:
Examine your completed worksheet and answer the following questions:
a. Which inventory cost flow assumption produces the most net income?
b. Which inventory cost flow assumption produces the least net income?
c. What caused the difference between your answers to a and b?
d. Which inventory cost flow assumption produces the highest ending cash balance?
e. Which inventory cost flow assumption produces the lowest ending cash balance?
f. Does the assumption that produces the highest net income also produce the highest cash balance? Explain.
g. As you recall, Del originally used the specific identification method in his initial calculations when he projected $51,600 net income. According to Delʼs reckoning, that should have left him cash of $25,800 (50% of $51,600) after paying his investors. Why would he only have $3,800 left? Explain.
h. Which inventory cost flow assumption would you suggest Del use? Explain.
I. What changes would have taken place if Delʼs purchase prices had fallen rather than risen? To find out, enter the following values in cells C11 through C14, respectively: 390, 380, 370, and 360. Print the results. Explain what the changes are and why they have taken place.
J. Suppose Delʼs purchase prices had remained constant. Enter 400 in cells C11 through C14. Explain what changes take place and why.
K. Reset the purchase prices to their original values (cells C11 through C14). Suppose Del had purchased 250 units on November 20 rather than 150. Enter 250 in cell C14 and alter column G in the Data Section. Explain what happens to net income under each inventory cost flow assumption and why. Also, what “management” implications might this have for Del?
L. Reset the November 20 purchase to 150 units, including column G. To test your formulas, suppose that Del had sold 600 units rather than 500. Sales now total $384,000. The extra units sold come from the May 13 purchase (25 units) and the November 20 purchase (75 units). Change cell B17 to 600 and cells D32 through G32 to $384,000. Alter columns E, F, and G in the Data Section to reflect the change. Your formulas should automatically redo the Calculations and Answer sections. Print the results again. CHART ANALYSIS 9. Click the Chart sheet tab. On the screen is a column chart showing ending inventory costs. During a deflationary period, which bar represents FIFO costing, which represents LIFO costing, and which represents weighted average? Explain your reasoning.
M. Click the Chart sheet tab. On the screen is a column chart showing ending inventory costs. During a deflationary period, which bar represents FIFO costing, which represents LIFO costing, and which represents weighted average? Explain your reasoning. When the assignment is complete, close the file without saving it again.
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill