Case Study #11: Chapters 1 and 2 Financial Statements and Preparation - 1 of 5 at 3 pts. Each This stylized case study is about a business with short but consistent history- until last yearl its most recently prepared financial reports are summarized below. Note, they're from 31 December 2020. You are being asked to prepare the 2021 Income Statement and Balance Sheet as of 31 December 2021. Income Statement - 2020 Revenue (12000 $1000) $12,000,000 COGS Beginning Inventory (1000 5500) 500,000 + Purchases (12000 @ $500) 6.000.000 -Ending Inventory (1000 $500) 500.000 6.000.000 COGS Gross Margin $6,000,000 Operating costs 4.800,000 Interest 200,000 Depreciation (annually, for three more years) 200.000 NIBT $800,000 Taxes (e 25%) 200.000 = NIAT $600,000 0 Balance Sheet as of 31 December 2020 Assets Financial Claims Cash 900,000 Accounts Payable Inventory (1000 @ $500) 500,000 Notes Payable 3,000,000 Property, Plant and Eq(net) 600,000 Owner's Equity (initial) 1,000,000 Real Estate 3.000.000 Retained Earnings 1.000.000 Assets 5,000,000 Liabilities and Owner's Equity 5,000,000 This business generally purchases inventory, 1000 units per month, adds value through its secret processes," and sells 1000 units per month. In years past, 2020 inclusive, inventory costs were $500 per unit (1000 units per month) while finished products were sold for $1000 per unit, 1000 units per month. They try to keep a one month supply of inventory on hand at any time, at year end also But 2021 was uniquel Inventory costs fell considerably at the beginning of the year, January's purchases (of 1000 units) only costed $100,000 total. February's 1000 units costed $200,000. March's 1000 units costed $300,000...and so on. Although they were able to procure their 1000 units per month during 2021, supply chain disruptions caused costs to increase $100 per unit per month, such that December's purchase of 1000 units costed $1,200,000 while December's sales revenue was $1,000,000 (1000 units sold at $1000 per unit), just as every month had been in 2020 and in 2021. Operating and interest costs during 2021 were the same as they had been in 2020. But a machine purchased with cash was also made in 2021; a $400,000 purchase expected to last ten (10) years. Your jobs? 1) Prepare the company's 2021 Income Statement presuming: a) It uses LIFO inventory valuation methods and chose to depreciate the new machine using straight-line depreciation over ten (10) years b) It uses FIFO inventory valuation methods and chose to depreciate the new machine using straight-line depreciation over ten (10) years c) It uses average cost inventory valuation methods and chose to depreciate the new machine using straight-line depreciation over ten (10) years d) It uses LIFO inventory valuation methods and chose to depreciate the new machine using 5- year double declining balance (ddb) depreciation over five (5) years e) it uses FIFO inventory valuation methods and chose to depreciate the new machine using 5- year double declining balance (ddb) depreciation over five (5) years f it uses average cost inventory valuation methods and chose to depreciate the new machine using 5-year double declining balance (ddb) depreciation over five (5) years g) It uses LIFO inventory valuation methods and chose Section 179 Expense Method Depreciation wherein all $400,000 can be expensed in the year of purchase h) It uses FIFO inventory valuation methods and chose Section 179 Expense Method Depreciation wherein all $400,000 can be expensed in the year of purchase i) It uses average cost inventory valuation methods and chose Section 179 Expense Method Depreciation wherein all $400,000 can be expensed in the year of purchase Yep. You're likely to get nine different NIAT results for the firm's operating results in 2021. 2) Now choose the one (of nine) you think is most accurate, explain why you have chosen as you have. 3) Prepare the company's 31 December 2021 Balance Sheet given your choice in 2) above. Thank you for your efforts