Problem 8-7 The management of Sandhill Company has asked its accounting departme
ID: 2538383 • Letter: P
Question
Problem 8-7 The management of Sandhill Company has asked its accounting 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 2017 and 2018. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2017, and that the initial LIFO base would have been the inventory value on December 31, 2016. The following are the company's financial statements and other data for the years 2017 and 2018 when the FIFO method was employed. Level inancial Position as of 12/31/16 12/31/17 12/31/18 91,500 $128,500 155,200 98,100 172,800 172,800 139,400 177,400 157,400 171,000 201,900 $500,700 $537,000 $707,300 $. 39,400 $ 59,600 79,000 73,600 168,800 201,900 201,900 201,900 141,400201,900 257,600 Total liabilities and equity $500,700 $537,000 7,300 79,000 Accounts receivable Inventory Other assets Total assets Accounts payable Other liabilities Common stock Retained earnings 118,000Explanation / Answer
Statment Showing changes in Account due to followed LIFO rather than FIFO at the end of 2018 Detail Amount Inventory $158,800.00 Cost of Goods Sold $989,280.00 Income Tax $156,224.00 Net Income $234,336.00 Retained Earning $436,236.00 Computation of Inventory and COGS Particular Units Cost/Unit Amount Inventory as on 31/12/2016 $43,200.00 $4.00 $172,800.00 Purchase $153,200.00 $4.30 $658,760.00 Goods available for sale in 2017 $196,400.00 $831,560.00 Less: CoGS in 2017 $153,200.00 $4.30 $658,760.00 Inventory 31/12/2017 $43,200.00 $172,800.00 Add; Purchase in 2018 $183,200.00 $5.40 $989,280.00 Goods available for sale in 2018 $226,400.00 ########## Less: CoGS in 2018 $183,200.00 $5.40 $989,280.00 Inventory 31/12/2018 $43,200.00 $172,800.00 Coomputation of Income Tax and Net income Detail 2017 2018 Sales Revenue ########## ########## Less: COGS $658,760.00 $989,280.00 Less: Other Expense $201,600.00 $305,600.00 Income before Tax $212,040.00 $390,560.00 Less: Income Tax @ 40% $84,816.00 $156,224.00 Income after Tax $127,224.00 $234,336.00 Computation of Retained Earning 2017 2018 Beginning Retained Earning $141,400.00 $201,900.00 Income for the year $127,224.00 $234,336.00 Ending Balance of Retained Earning $268,624.00 $436,236.00