ACCOUNTING ALTERNATIVES AND FINANCIAL ANALYSIS. Shady Deal Automobile Sales Company has asked your bank for a $100,000 loan to expand its sales facility. Shady Deal provides you with the following data:

REQUIRED:
1. Compute cost of goods sold for 1995, 1994, and 1993, using both the FIFO and the LIFO methods.
2. Compute depreciation expense for Shady Deal for 1995, 1994, and 1993, using both 5% and 10% of the cost of depreciable assets. .
3. Recompute Shady Deal’s net income for 1995, 1994, and 1993, using LIFO and 10%
depreciation. (Don’t forget the tax impact of the increases in cost of goods sold and depreciation expense.)
4. Does Shady Deal appear to have materially changed its financial statements by the selection of FIFO (rather than LIFO) and 5% (rather than 10%) depreciation?

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1995 1994 1993 Sales revenue $6,100,000 $5,800,000 $5,400,000 Net income 119,000 112,000 106,000 Ending inventory (FIFO)* 665,000 600,000 500,000 Purchases 5,370,000 Depreciable assets 1,240,000 5,105,000 1,150,000 1,090,000 4,860,000 *The 1992 ending inventory was $470,000 (FIFO). Your inspection of the financial statements of other automobile sales firms indicates that most of these firms adopted the LIFO method in the late 1970s. You further note that Shady Deal has used 5% of depreciable asset cost when computing depreciation expense and that other automobile dealers use 10%. Assume that Shady Deal's effec- tive tax rate is 25% of income before tax. Also assume the following: 1995 1994 1993 Ending inventory (LIFO)* $508,000 $495,000 $480,000 *The 1992 ending inventory was $470,000 (LIFO).