ACTIVITY 82 Purpose: Jan 4 Apr 6 Aug 9 Nov 3 0 Frasco and Lasco are virtually identical; both companies began operations at the beginning of the current year and during the year purchased inventory as follows: TEST YOUR UNDERSTANDING Compare effects of the inventory cost-flow assumptions FIFO and LIFO on the financial statements. Compare effects of the depreciation method (SL or DDB) on the financial statements. Prepare the income statement, balance sheet, and the statement of cash flows using different accounting methods. Understand how the choice of different accounting methods affects cash and accrual accounting. Specific Accounts During the first year, both companies sold 25,000 units of inventory. Frasco uses the first-in, first-out (FIFO) method, and Lasco uses last-in, first-out (LIFO) method for inventory. Sales revenue COGS Operating expenses: In early January both companies purchased equipment costing $200,000 with a 10-year estimated useful life and no residual value. Frasco uses straight-line depreciation, and Lasco uses double-declining- balance depreciation for equipment. 10,000 units at $4 = 10,000 units at $5 = 10,000 units at $6 = 10,000 units at $7 = 40,000 Both companies' trial balances at December 31st include the following: Sales revenue..... $300,000 $220,000 .........compute Purchases (see above). COGS..... Operating expenses: Depreciation expense Other Net income ************* INCOME STATEMENT Depreciation expense. Other than depreciation Use the above information to answer the following questions. Q1 Prepare a multi-step Income Statement for both companies in the space provided below. $ 40,000 50,000 60,000 70,000 $220,000 Page 209 ...compute .80,000 FRASCO $300,000 (120,000) (20,006) (80,000) $80,000 LASCO $300,000 (155,000) (40,000) 180,000 $25,005 Chapter 6

ACTIVITY 82 TEST YOUR UNDERST ANDING purpose: - Compare effects of the inventory cont-flow assumptions firo and UFO on the financlal statements. - Compare effects of the depreciation method (SL or DDE) on the financlal statements: - Prepare the income statement, balance sheet, and the statement of cash flows using different accounting methods. - Understand how the choice of different accounting methods affects cash and accrual accounting: Frasco and Lasco are virtually identical; both companies began operations at the begining of the current vear and during the year purchased inventory as follows: During the first year, both companies sold 25,000 units of imventory, Frasco uses the first-in, firn-out (FFF) method, and Lasco uses last-in, first-out (UFO) method for inventory. In early January both companies purchased equipment costing $200,000 with a 10 -rear estimated useful life and no residual value. Frasco uses straight-line depreciation, and tasco uses double-declining: balance depreciation for equipment: Use the obove information to answer the following questions. a1 Prepare a multi-step Income Statement for both companies in the space provided below. the Supplement Schedule-lidirtect Method that reconciles net income and net cash ftom operating activities Q3 Prepare a Balance Sheet for both companies in the space provided below