Problem NO: 7

The management of Tritt Company has asked its accounting\ndepartment to describe the effect upon the company’s financial position and its income statem

The management of Tritt Company has asked its accounting

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department to describe the effect upon the company’s financial position and its income statements of accounting for inventories on the LIFO rather than the FIFO basis during 2014 and 2015. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2014, and that the initial LIFO base would have been the inventory value on December 31, 2013. Presented below are the company’s financial statements and other data for the years 2014 and 2015 when the FIFO method was employed.

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Financial Position as of

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12/31/13 12/31/14 12/31/15

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Cash $ 90,000 $130,000 $154,000

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Accounts receivable 80,000 100,000 120,000

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Inventory 120,000 140,000 176,000

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Other assets 160,000 170,000 200,000

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Total assets $450,000 $540,000 $650,000

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Accounts payable $ 40,000 $ 60,000 $ 80,000

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Other liabilities 70,000 80,000 110,000

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Common stock 200,000 200,000 200,000

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Retained earnings 140,000 200,000 260,000

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Total liabilities and equity $450,000 $540,000 $650,000

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Income for Years Ended

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12/31/14 12/31/15

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Sales revenue $900,000 $1,350,000

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Less: Cost of goods sold 505,000 756,000

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Other expenses 205,000 304,000

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710,000 1,060,000

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Income before income taxes 190,000 290,000

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Income taxes (40%) 76,000 116,000

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Net income $114,000 $ 174,000

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Other data:

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1. Inventory on hand at December 31, 2013, consisted of 40,000 units valued at $3.00 each.

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2. Sales (all units sold at the same price in a given year):

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2014—150,000 units @ $6.00 each 2015—180,000 units @ $7.50 each

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3. Purchases (all units purchased at the same price in given year):

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2014—150,000 units @ $3.50 each 2015—180,000 units @ $4.40 each

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4. Income taxes at the effective rate of 40% are paid on December 31 each year.

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Instructions

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Name the account(s) presented in the financial statements that would have different amounts for 2015 if

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LIFO rather than FIFO had been used, and state the new amount for each account that is named. Show computations.

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