# Project #82209 - Inventory Analysis

At the end of January 2014, the records of Donner Company showed the following for a particular item that sold at \$16 per unit:

Transactions     Units Amount
Inventory, January 1, 2014                            500  \$                    2,365
Purchase, January 12                            600                        3,600
Purchase, January 26                            160                        1,280
Sale                         (370)
Sale                         (250)

Required:
1a. Compute Cost of Goods Sold under each method of inventory: average cost, FIFO, LIFO, and specific identification. For specific
identification, assume that the first sale was selected from the beginning inventory and the second sale was selected from the
January 12 purchase. (Round unit price to 2 decimal places. Input all amounts as positive values.)
Input areas are shaded.

Average Cost Cost of Good Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory
Purchases:
January 12, 2014
January 26, 2014
Total

FIFO Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory                            500   \$0
Purchases:
January 12, 2014                            600   \$0
January 26, 2014                            160   \$0
Total                        1,260   \$0 0

LIFO Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory                            500
Purchases:
January 12, 2014                            600
January 26, 2014                            160
Total                        1,260    \$                           -   0    \$                    4,040

Specific Identification Cost of Goods Available for Sale Cost of Goods Sold
# of Units Cost per Unit Cost of Goods Available for Sale # of Units Sold Cost per Unit Cost of Goods Sold
Beginning inventory                            500
Purchases:
January 12, 2014                            600
January 26, 2014                            160
Total                        1,260    \$                           -   0

Required:
2a. FIFO and LIFO, which method would result in the higher pretax income?

2b. FIFO and LIFO, which would result in the higher EPS?

3 FIFO and LIFO, which method would result in the lower income tax expense? Assume a 30 percent average tax rate.

4 FIFO and LIFO, which method would produce the more favorable cash flow?

At the beginning of the year, Plummer’s Sports Center bought three used fitness machines from Advantage, Inc. The machines immediately
were overhauled, installed, and started operating. The machines were different; therefore, each had to be recorded separately in the accounts.

Machine A Machine B Machine C
Amount paid for asset  \$          11,000  \$          30,000  \$             8,000
Installation costs                     500                 1,000                     500
Renovation costs prior to use                 2,500                 1,000                 1,500

By the end of the first year, each machine had been operating 4,800 hours.

Required:
1 Compute the cost of each machine.

Total Cost
Machine A
Machine B
Machine C

Required:
2 Prepare one entry to record depreciation expense at the end of year 1, assuming the following:
(If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Estimates
Machine Life Residual Value Depreciation Method
A 5 years   \$1,000   Straight-line
B 60,000 hours   2,000  Units-of-production
C 4 years   1,500   Double-declining-balance

Transaction General Journal Debit Credit
1 Depreciation expense 10,000
Net income results, reported in the financial statement presentation, can be affected by the inventory reporting methods used. FIFO, LIFO, and weighted average methods each have their own implications during periods of inflation and deflation. Assume the role of a manager, employee, or an investor, and in 1–2 pages analyze the GAAP and ethical implications of each reporting method in a hypothetical company. Then, given your role, select which reporting method you would use, and explain why. Consider tax liabilities and profit levels in your response, as well as ethical considerations you may have for your valuation method selection.

#### Submission Requirements

• Written communication: It should be free of errors that detract from the overall message.
• APA formatting: Resources and citations are formatted according to APA (6th edition) style and formatting.
• Length of paper: 1–2 pages, not including cover page and references.
• Font and font size: Times New Roman, 12-point.

 Subject Business Due By (Pacific Time) 09/19/2015 09:00 am
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