Reference no: EM13903907
Effect of cost-?ow assumptions on income and tax
The Svejk Company is a wholesaler of beer tankards. The table below shows the company's pur- chases and sales of its (1 litre) Pilsener Special tankard.
Balance Purchases Sales in inventory
31/12/x5 During x6: February
|
300
|
at 5
|
|
|
500 at 4/tankard
|
April July August
|
700
|
at 5.5
|
600-800
|
at 7-at 7.5
|
|
October
|
500
|
at 6
|
|
|
|
Total
|
1,500
|
|
1,400
|
|
|
31/12/x6
|
|
|
|
|
600 at ?
|
Required
(a) Calculate the x6 gross profit and end-x6 inventory for this product line under FIFO, LIFO and WAC cost-flow assumptions. Assume the company uses a perpetual system to keep track of inventory quantities and values. Compare the results. Which method yields the highest gross profit and why?
(b) Assume all three methods are permitted for tax purposes. Would Svejk's income tax liability for x6 be greater or less if it used LIFO rather than FIFO - and by how much? Assume a 40% tax rate.
(c) On investigating Svejk's accounting systems, you discover that it uses a perpetual inventory system to keep track of inventory quantities but uses a periodic system to establish the costs of tankards sold during the year. (Under the periodic system, COGS is calculated at year-end: thus purchases made (and other costs incurred) after the last sale date are included in the COGS calculation.)
Recalculate the x6 gross profit for the Pilsener Special product line under FIFO, LIFO and WAC cost-flow assumptions. Compare the resulting gross profit figures with those you calculated in (a). Why does gross profit differ between (a) and (c) under LIFO and WAC? Under what circumstances would you expect a company to choose the system outlined in (c)?
Department store assistant manager
: Evaluate and explain as accurately as you can the manner in which each of the following individual or party would be affected by fairly rapid inflation? a) A department store assistant manager. b) A pensioner who receives fixed monthly income.
|
Compute the costs of second quarter sales
: Compute the costs of second quarter sales and of units in inventory at end-June x4, under FIFO, WAC and LIFO cost-flow assumptions.
|
Low-income american families
: Suppose that Chinese manufacturers develop the ability to build a good car that costs only $5,000. They start shipping it to the U.S. For each of the following groups, say whether they are likely to win, lose or not be affected much by the Chinese..
|
Find the total cost of roasting
: A coffee company has found that the marginal cost, in dollars per pound, of the coffee it roasts is represented by the function below, where x is the number of pounds of coffee roasted. Find the total cost of roasting 150 lb of coffee, disregardin..
|
Calculate the x six gross profit and end-x six inventory
: Calculate the x6 gross profit and end-x6 inventory for this product line under FIFO, LIFO and WAC cost-flow assumptions.
|
Prepare the bond schedule showing interest paid
: Ridgetop Company issued the following 5-year bonds on January 1, 2013: $100,000 maturity value, 6% annual interest payable semi-annually on July1 and December 31. The market rate of the date of issuance was 7%.
|
Assemble supporting material
: Select two brands that serve the same market but are not discussed in the chapter. Using print advertising, screen shots from Web sites, and stills from commercials (use screen shots from streaming video), assemble supporting material that helps y..
|
What kind of entity is zen inc
: Zen Inc. has a building worth $1,000,000 finance with $900,000 debt and $100,000 of equity. The building is leased to Yellow Inc. At the end of the lease term the building is available for purchase by yellow for $600,000. What kind of Entity is Zen..
|
The stockholders'' equity section of the balance sheet
: The stockholders' equity section of the balance sheet for Pental, Inc., follows before the stock dividend. Common stock, $1 par, 100,000 shares issued and outstanding $100,000 Additional paid-in capital 50,000 Retained earnings 450,000 Total stockhol..
|