Congratulations! High Hopes Incorporated, a new start-up company, has just hired you as their new business consultant. High Hopes management is faced with making some quick decisions as to which accounting methods they should use. They have provided you with the following projected financial information for 2015:

On 1/1/15	Acquire equipment for $40,000 cash. The equipment has a 5-year life and a $5,000 salvage value.
During 2015	Purchase inventory:
	Date	Number of Units	Unit Price
	1/1	100	$115
	7/1	150	$110
	11/1	110	$100
	Total	360
	Sell 200 units of inventory at $400 each.
	Other expenses for the year, excluding depreciation, total $10,000.

They are considering two alternatives for these items:

1. Double-declining balance depreciation and the FIFO periodic inventory method, OR

2. Straight-line depreciation and the LIFO periodic inventory method.

Its your first day on the job. They have asked you to indicate the impact of these alternative accounting method choices on their income statement. Quickly, you dash back to your office and compute the income statement for the first year of operation under each alternative.

	Alternative
	1	2
Sales	$ 80,000	$ 80,000
Cost of goods sold
Gross margin
Depreciation expense
Other operating expenses	10,000	10,000
Net income

Recalculate the missing information on the alternative income statements and enter the information in the table above. Enter digits only( no commas or $)

A. During your presentation to High Hopes management, you are asked if these alternative accounting methods have any impact on the balance sheet if so, what accounts will be affected? What is your response?

B. High Hopes management is concerned that the use of an accelerated method of depreciation will make their equipment less valuable (if they should decide to sell it). What is your response?

C. Finally, High Hopes management is also concerned about choosing the proper accounting methods for tax purposes. Do they need to use the same depreciation method for tax and book purposes?

D. Do they need to use the same inventory method for tax and book purposes?