In preparation for significant expansion of its international operations, Pharoah Co. has adopted a plan to gradually shift to the same accounting methods as used by its international competitors. Part of this plan includes a switch from LIFO inventory accounting to FIFO (recall that IFRS does not allow LIFO). Pharoah decides to make the switch to FIFO at January 1, 2020. The following data pertains to Pharoah’s 2020 financial statements (in millions of dollars). Sales $ 580 Inventory purchases 380 12/31/20 inventory (using FIFO) 610 Compensation expense 20 All sales and purchases were with cash. All of 2020’s compensation expense was paid with cash. (Ignore taxes.) Pharoah’s property, plant, and equipment cost $ 430 million and has an estimated useful life of 10 years with no salvage value. Pharoah Co. reported the following for fiscal 2019 (in millions of dollars): (See Image a) Summary of Significant Accounting Policies Inventory: The company accounts for inventory by the LIFO method. The current cost of the company’s inventory, which approximates FIFO, was $ 63 and $ 53 higher at the end of fiscal 2019 and 2018, respectively, than those reported in the balance sheet. (a). Prepare Pharoah’s December 31, 2020, balance sheet and an income statement for the year ended December 31, 2020. In columns beside 2020’s numbers, include 2019’s numbers as they would appear in the 2020 financial statements for comparative purposes. (List Assets in order of liquidity.) (See image b for format of statements)
In preparation for significant expansion of its international operations, Pharoah Co. has adopted a plan to gradually shift to the same accounting methods as used by its international competitors. Part of this plan includes a switch from LIFO inventory accounting to FIFO (recall that IFRS does not allow LIFO). Pharoah decides to make the switch to FIFO at January 1, 2020. The following data pertains to Pharoah’s 2020 financial statements (in millions of dollars).
| Sales | $ 580 | ||
| Inventory purchases | 380 | ||
| 12/31/20 inventory (using FIFO) | 610 | ||
| Compensation expense | 20 |
All sales and purchases were with cash. All of 2020’s compensation expense was paid with cash. (Ignore taxes.) Pharoah’s property, plant, and equipment cost $ 430 million and has an estimated useful life of 10 years with no salvage value.
Pharoah Co. reported the following for fiscal 2019 (in millions of dollars):
(See Image a)
Summary of Significant Accounting Policies
Inventory: The company accounts for inventory by the LIFO method. The current cost of the company’s inventory, which approximates FIFO, was $ 63 and $ 53 higher at the end of fiscal 2019 and 2018, respectively, than those reported in the
(a). Prepare Pharoah’s December 31, 2020, balance sheet and an income statement for the year ended December 31, 2020. In columns beside 2020’s numbers, include 2019’s numbers as they would appear in the 2020 financial statements for comparative purposes. (List Assets in order of liquidity.)
(See image b for format of statements)
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