Study Appendix 16A. The Omaha Fertilizer Company had inventory on December 31, 20X0, of 20,000 bags at
Question:
Study Appendix 16A. The Omaha Fertilizer Company had inventory on December 31, 20X0, of 20,000 bags at $10 = $200,000. Purchases during 20X1 were 30,000 bags. Sales were 28,000 bags for sales revenue of $17 per bag. Prepare a four-column comparative statement of gross margin for 20X1:
1. Assume that purchases were at $12 per unit. Assume FIFO and then LIFO (columns 1 and 2).
2. Assume that purchases were at $8 per unit. Assume FIFO and LIFO (columns 3 and 4).
3. Assume Omaha Fertilizer is reporting for tax purposes and has an income tax rate of 35%. Suppose all transactions are for cash.
a. Which inventory method in number 1 results in more cash for Omaha Fertilizer Company? By how much?
b. Which inventory method in number 2 results in more cash for Omaha Fertilizer Company? By how much?
Step by Step Answer:
1 2 3a LIFO results in more cash by the difference in income tax effects LIFO resul...View the full answer
Introduction to Management Accounting
ISBN: 978-0133058789
16th edition
Authors: Charles Horngren, Gary Sundem, Jeff Schatzberg, Dave Burgsta
