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Statement effects of making the purchase

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MVP Corp uses LIFO to value its inventory. The 2014 inventory records disclose the following:

Beginning Inventory

Units

Unit Cost

First layer

10,000

$15

Second layer

22,000

$18

Purchases

250,000

$20

At December 26, 2014, the company had a special, nonrecurring opportunity to purchase 40,000 units at $17 per unit. The purchase can be made and the units delivered on December 30, or it can be delayed until the first week of January 2015. The company plans to make the purchase, owing to the obvious cost savings involved. Sales for 2014 totaled 245,000 units.

Team Debate:

  • Team 1: Describe the financial statement effects of making the purchase in 2014 as opposed to 2015. Argue for making the purchase during 2014. Defend the use of LIFO. Use the matching concept in your defense.
  • Team 2: Given the financial statement effects of the decision to purchase in 2014, argue against the use of LIFO and in favor of FIFO. Base your arguments on the conceptual framework-for example, representational faithfulness and neutrality. Use the matching concept in your argument.

Reference no: EM131016296

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