ACCOUNTING 2101/6101 - TESTING YOUR KNOWLEDGE Page 1 CHAPTER 8 1) Riverdale Company is considering changing its inventory valuation from LIFO to FIFO. 1 LIF Management of the company wants to consider all of the effects on the company, including its reported performance, before making the final decision. As of January 1, 20x1, the inventory account is valued on the LIFO basis, consisting of 1,000,000 units at $7.50 per unit. Also, as of 1/1/x1, the cash balance is $900,000 and there are 1,000,000 shares of common stock outstanding. The company has made the following forecasts for the period 20x1 through 20x3. 20x1 20x2 20x3 Unit sales (in millions of units) Sales price per unit $12 $15 $17 Unit purchases (in millions of units) 1.0 1.1 1.2 Purchase price per unit $9.5 $10.5 $11 Annual depreciation (in thousands of dollars) $340 $360 $380 Cash dividends paid per share $0.35 $0.35 $0.35 Cash payments for additions to and replacement of plant and equipment (in thousands of dollars) $420 $420 $420 Income tax rate 38% 38% 38% Operating expenses (exclusive of depreciation) as a percent of sales E yisunat 12% 13% 13% Common shares outstanding (in millions) Punchone REQUIRED: [a] Prepare a schedule that illustrates and compares the following data for Riverdale Company under the LIFO and FIFO inventory methods for 20x1 - 20x3. Assume the company would