Ex. 223
Eckert Company reported the following summarized annual data at the end of 2014:
Sales revenue$1,000,000
Cost of goods sold* 600,000
Gross margin400,000
Operating expenses 270,000
Income before income taxes$ 130,000
*Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to average-cost. He has determined that on an average-cost basis, the ending inventory would have been $220,000.
Instructions
(a)Restate the summary information on an average-cost basis.
(b)What effect, if any, would the proposed change have on Eckert's income tax expense, net income, and cash flows?
(c)If you were an owner of this business, what would your reaction be to this proposed change?
Ex. 224
Compute the lower-of-cost-or-net realizable value valuation for Aber Company's total inventory based on the following:
Inventory CategoriesCost DataNet Realizable Value Data
A$18,000$17,600
B 14,000 14,600
C 21,000 20,500
Ex. 225
The controller of Scheller Company is applying the lower-of-cost-or-net realizable value basis of valuing its ending inventory. The following information is available:
Cost Net Realizable Value
Lawnmowers:
Self-propelled$15,000$17,000
Push type 19,000 16,000
Total 34,000 33,000
Snowblowers:
Manual30,00031,000
Self-start 20,000 21,000
Total 50,000 52,000
Total inventory$84,000$85,000
Instructions
Compute the value of the ending inventory by applying the lower-of-cost-or-net realizable value basis.