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, 2020. There are 1,000,000 shares of common stock outstanding as of January 1, 2020, and the cash balance is $400,000.

The company has made the following forecasts for the period 2020?2022.

Instructions

a. Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2020?2022. Assume the company would begin LIFO at the beginning of 2020.

1. Year-end inventory balances. 3. Earnings per share.

2. Annual net income after taxes. 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.

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2020 2021 2022 1.1 Unit sales (in millions of units) 1.0 1.3 Sales price per unit Unit purchases (in millions of units) Purchase price per unit Annual depreciation (in thousands of dollars) Cash dividends per share Cash payments for additions to and replacement of plant and equipment (in thousands of dollars) $10 $12 $12 1.0 1.1 1.2 $9 $8 $10 $300 $300 $300 $0.15 $0.15 $0.15 $350 $350 $350 Income tax rate 20% 20% 20% Operating expenses (exclusive of depreciation) as a 15% 15% percent of sales 15% Common shares outstanding (in millions) 1.