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182 using u s gaap a merchandising firm is trying to decide between using lifo or fi 4297667

 

182. Using U.S. GAAP, a merchandising firm is trying to decide between using LIFO or FIFO for an inventory cost flow assumption. The firm had inventory purchases and sales over 3 years as follows:
 

 

Units

Unit Price

Beginning inventory

0

Year 1 Purchases

 

 

    1/1

100

$0.90 

    5/1

150

0.85

    11/1

120

0.95

Year 1 Withdrawals

(140)

 

Year 2 Purchases

 

 

    2/1

120

0.95

    6/1

110

0.96

    9/1

100

0.98

Year 2 Withdrawals

(300)

 

Year 3 Purchases

 

 

    1/1

150

0.90

    6/1

100

0.95

    10/1

120

0.95

Year 3 Withdrawals

(340)

 

 

 

 

The firm estimates that using LIFO will cost the firm $50 for additional clerical work. The tax rate for all years is 30%. Net income before cost of goods sold for each year is as follows:

Year 1 – $1,000
Year 2 – $2,000
Year 3 – $2,500

Required:
 

a.

What is net income after taxes under each method for years 1 through 3?

b.

Which method will result in a higher after tax cash flow for each year?

 

 

 

183. For financial reporting purposes, Structural Builders uses the completed contract method of accounting for long-term contracts. For tax purposes, Structural Builders uses the percentage-of-completion or the installment method of accounting for the same contract. The contract is completed in Year 3. The terms of the contract, and Structural Builders' estimate of costs to be incurred are as follows:
 

 

 

Cash Receipts

Cost Incurred

 

Year 1

$1,000,000

$1,500,000

 

Year 2

2,000,000

1,500,000

 

Year 3

 3,000,000

 1,500,000

 

Total

$6,000,000

$4,500,000

 

 

 

 

Required:

What amount of deferred tax asset/liability will be reported by Structural Builders each year if:
 

a.

The percentage-of-completion method is used for tax reporting?

b.

The installment method is used for tax reporting? Assume the tax rate is 35%.

 

 

 

 

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