Reference no: EM132736912

Mineral Waters has used the FIFO cost flow assumption since it was first organized in 20X4. Results have been as follows:

                                                                    20X4               20X5              20X6           20X7
Reported net income - FIFO              $26,250         $45,000     $48,750          $67,500?
Reported ending inventories - FIFO     82,250          142,000     164,000         173,000?
Reported ending Inventories -Average cost 78,500     101,650   117,500         135,500

Required:

Problem 1. Restate net income assuming use of the average cost method since the company's inception.

Problem 2. What inventory cost flow policy would you expect this company to adopt if it was trying to:

a. Minimize income tax payments.?
b. Report maximum inventory values on the balance sheet.