Case Study Introduction: Twenty-Four Seven is an Egyptian company that manufactures cosmetics products. The financial statements...
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Case Study Introduction: Twenty-Four Seven is an Egyptian company that manufactures cosmetics products. The financial statements are prepared in accordance with the Egyptian Accounting Standards. When reporting the financial data, management must choose among different accounting methods, for example, depreciation method. This case might be a good example of how different accounting treatments affect the company's financial statements. Consequently, this will affect the investors' interest in the company. Therefore, a company should balance between making their company profitable, and choosing among various accounting treatments cautiously. Case Information: Twenty-Four Seven began operations at the beginning of the current year by issuing 100,000 common shares for $15.4 par value. In early January, the company purchased equipment costing $175,000 that had a 10-year estimated useful life and a $10,000 residual value. The management is confused whether to use the straight line or the double declining balance methods of depreciation; given that the company needs to maximize the income for reporting purposes. Moreover, the company made inventory purchases of $926,000 during the year, as follows: January 1,500 units $120.00 = $180,000 July 3,000 November 2,000 Totals 6,500 142.00 426,000 160.00 320,000 $926,000 Sales for the year are 6,000 units for $1,800,000 of revenue. Expenses other than cost of goods sold and income taxes total $425,000. The management of the company is undecided about whether to adopt the FIFO method or the weighted-average-cost method for inventories. The company uses the periodic inventory system. The income tax rate is 25%. Case Study Introduction: Twenty-Four Seven is an Egyptian company that manufactures cosmetics products. The financial statements are prepared in accordance with the Egyptian Accounting Standards. When reporting the financial data, management must choose among different accounting methods, for example, depreciation method. This case might be a good example of how different accounting treatments affect the company's financial statements. Consequently, this will affect the investors' interest in the company. Therefore, a company should balance between making their company profitable, and choosing among various accounting treatments cautiously. Case Information: Twenty-Four Seven began operations at the beginning of the current year by issuing 100,000 common shares for $15.4 par value. In early January, the company purchased equipment costing $175,000 that had a 10-year estimated useful life and a $10,000 residual value. The management is confused whether to use the straight line or the double declining balance methods of depreciation; given that the company needs to maximize the income for reporting purposes. Moreover, the company made inventory purchases of $926,000 during the year, as follows: January 1,500 units $120.00 = $180,000 July 3,000 November 2,000 Totals 6,500 142.00 426,000 160.00 320,000 $926,000 Sales for the year are 6,000 units for $1,800,000 of revenue. Expenses other than cost of goods sold and income taxes total $425,000. The management of the company is undecided about whether to adopt the FIFO method or the weighted-average-cost method for inventories. The company uses the periodic inventory system. The income tax rate is 25%.
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