Suppose you are considering investing in two businesses, La Petite France Bakery and Burgers Ahoy!. The two companies are virtually identical, and both began operations at the beginning of the current year. During the year, each company purchased inventory as follows:

During the first year, both companies sold 25,000 units of inventory. In early January, both companies purchased equipment costing $150,000 that had a 10-year estimated useful life and a $20,000 residual value. La Petite France uses the inventory and depreciation methods that maximize reported income. By contrast, Burgers uses the inventory and depreciation methods that minimize income tax payments. Assume that both companies’ trial balances at December 31 included the following:
Sales revenue ......................... $350,000
Operating expenses ............... 50,000
The income tax rate is 40%.

Requirements
1. Prepare both companies income statements.
2. Write an investment newsletter to address the following questions: Which company appears to be more profitable? Which company has more cash to invest in promising projects? If prices continue rising over the long term, which company would you prefer to invest in? Why?(Challenge)

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Jan 4 Apr 6 Aug 9 Nov 27 Totals 10,000 units at $4 40,000 5,000 units at 5 = 25,000 7,000 units at 642,000 10,000 units at 770,000 $177,000 32,000