Question

The president of Aggressive Limited has come to you for advice. Aggressive is a newly established company with prospects for high growth. Decisions must soon be made concerning accounting policies for external financial reporting. The following information pertains to the company’s first year of operations ( in thousands of dollars):
Revenue ...................... $ 48,000
Purchases...................... 18,000
Closing inventory— FIFO............... 6,000
Closing inventory— average cost............. 4,800
Depreciation— straight line............... 2,400
Depreciation— declining balance............. 4,800
Advertising and promotion expense............ 2,400
Amortization of advertising and promotion over five years.... 480
Other expenses .................... 5,000
Income tax rate 20% Common shares outstanding........ 1,200

Required:
1. Prepare a columnar income statement. In column 1, show net income assuming the use of FIFO, declining- balance depreciation, and expensing of advertising and promotion. In successive columns, show the individual impact of each of the following policy changes on net income:
a. In column 2, average cost;
b. In column 3, straight- line depreciation;
c. In column 4, amortization of advertising and promotion; and
d. In column 5, the combined effects of the alternatives presented separately in columns 2 through 4.
2. As president, which accounting policies would you choose? Explain.



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  • CreatedFebruary 17, 2015
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