Howe, Inc., a Texas crude oil producer, started business on May 1, 2008. It sells all of its production, F.0.B. shipping point, to a single customer at the current spot price for West Texas crude. The customer pays Howe 60% of the selling price on delivery with the remaining to be paid in 10 months. Throughout 2008, the oil spot market price was \($28\) per barrel; however, on December 31, 2008, the market price jumped to \($31\) per barrel, where it is expected to remain.
Howe’ direct production costs are \($12\) per barrel, drilling equipment depreciation expense totaled \($180,000\) for the eight-month period ending December 31, and property taxes of \($75,000\) were paid during the year. Howe produced 30,000 barrels of oil of which 6,000 barrels were included in January 1, 2009 opening inventory.
Required:
Compute Howe's 2008 pre-tax income and determine its inventory carrying value and Accounts receivable balance at December 31, 2008 under the following:
1. Production basis.
2. Sales (completed transaction) basis.
3. Installment (cash collection) basis.