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Falcon.Com purchases its merchandise at current market costs and resells the product at a price 2 0 cents higher. Its inventory costs are constant throughout
Falcon.Com purchases its merchandise at current market costs and resells the product at a price cents higher. Its inventory costs are constant throughout the current year. Data on the num ber of units in inventory at the beginning of the year, unit purchases, and unit sales are shown here: Number of units in inventorybeginning of year @ $ per unit cost units Number of units purchased during year @ $ per unit cost units Number of units sold during year @$ per unit selling price units CASE Financial Statement Consequences of LIFO and FIFO The beginningofyear balance sheet for Falcon.Com reports the following: Inventory units @ $ $ Total equity. $ Required: a Compute the aftertax profit of Falcon.Com separately for both the FIF and LIF methods of inventory valuation assuming the company has no expenses other than cost of goods sold and its income tax rate is Taxes are accrued currently and paid the following year. b If all sales and purchases are for cash, construct the balance sheet at the end of this year separately for both the FIF and LIFO methods of inventory valuation. c Describe the significance of each of these methods of inventory valuation for income determination and finan CHECK b Total assets, FIF: cial position in a period of increasing costs. $ LIF: $ d What problem does the LIFO method pose in constructing and analyzing interim financial statements? CFA Adapted
Falcon.Com purchases its merchandise at current market costs and resells the product at a price
cents higher. Its inventory costs are constant throughout the current year. Data on the num
ber of units in inventory at the beginning of the year, unit purchases, and unit sales are shown
here:
Number of units in inventorybeginning of year @ $ per unit cost units
Number of units purchased during year @ $ per unit cost units
Number of units sold during year @$ per unit selling price units
CASE
Financial Statement
Consequences of LIFO
and FIFO
The beginningofyear balance sheet for
Falcon.Com reports the following:
Inventory units @ $ $
Total equity. $
Required:
a Compute the aftertax profit of
Falcon.Com separately for both the FIF and LIF methods of inventory
valuation assuming the company has no expenses other than cost of goods sold and its income tax rate is
Taxes are accrued currently and paid the following year.
b If all sales and purchases are for cash, construct the balance sheet at the end of this year separately for both
the FIF and LIFO methods of inventory valuation.
c Describe the significance of each of these methods of inventory valuation for income determination and finan
CHECK
b Total assets, FIF:
cial position in a period of increasing costs.
$ LIF: $
d What problem does the LIFO method pose in constructing and analyzing interim financial statements?
CFA Adapted
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