The management of Tritt 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 2020 and 2021. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2020, and that the initial LIFO base would have been the inventory value on December 31, 2019. The following are the company’s financial statements and other data for the years 2020 and 2021 when the FIFO method was employed. Financial Position as of 12/31/19 12/31/20 12/31/21 Cash $ 90,000 $130,000 $154,000 Accounts receivable 80,000 100,000 120,000 Inventory 120,000 140,000 176,000 Other assets 160,000 170,000 200,000 Total assets $450,000 $540,000 $650,000 Accounts payable $ 40,000 $ 60,000 $ 80,000 Other liabilities 70,000 80,000 110,000 Common stock 200,000 200,000 200,000 Retained earnings 140,000 200,000 260,000 Total liabilities and equity $450,000 $540,000 $650,000 Income for Years Ended 12/31/20 12/31/21 Sales revenue $900,000 $1,350,000 Less: Cost of goods sold 505,000 756,000 Other expenses 205,000 304,000 710,000 1,060,000 Income before income taxes 190,000 290,000 Income taxes (40%) 76,000 116,000 Net income $114,000 $ 174,000 Other data: 1. Inventory on hand at December 31, 2019, consisted of 40,000 units valued at $3.00 each. 2. Sales (all units sold at the same price in a given year): 2020-150,000 units @ $6.00 each 2021-180,000 units @ $7.50 each 3. Purchases (all units purchased at the same price in given year): 2020-150,000 units @ $3.50 each 2021-180,000 units @ $4.40 each 4. Income taxes at the effective rate of 40% are paid on December 31 each year. Name the account(s) presented in the financial statements that would have different amounts for 2021 if LIFO rather than FIFO had been used, and state the new amount for each account that is named

The management of Tritt 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 2020 and 2021. The accounting department is to assume that the change to LIFO would have been effective on January 1, 2020, and that the initial LIFO base would have been the inventory value on December 31, 2019. The following are the company’s financial statements and other data for the years 2020 and 2021 when the FIFO method was employed. Financial Position as of 12/31/19 12/31/20 12/31/21 Cash $ 90,000 $130,000 $154,000 Accounts receivable 80,000 100,000 120,000 Inventory 120,000 140,000 176,000 Other assets 160,000 170,000 200,000 Total assets $450,000 $540,000 $650,000 Accounts payable $ 40,000 $ 60,000 $ 80,000 Other liabilities 70,000 80,000 110,000 Common stock 200,000 200,000 200,000 Retained earnings 140,000 200,000 260,000 Total liabilities and equity $450,000 $540,000 $650,000 Income for Years Ended 12/31/20 12/31/21 Sales revenue $900,000 $1,350,000 Less: Cost of goods sold 505,000 756,000 Other expenses 205,000 304,000 710,000 1,060,000 Income before income taxes 190,000 290,000 Income taxes (40%) 76,000 116,000 Net income $114,000 $ 174,000 Other data: 1. Inventory on hand at December 31, 2019, consisted of 40,000 units valued at $3.00 each. 2. Sales (all units sold at the same price in a given year): 2020-150,000 units @ $6.00 each 2021-180,000 units @ $7.50 each 3. Purchases (all units purchased at the same price in given year): 2020-150,000 units @ $3.50 each 2021-180,000 units @ $4.40 each 4. Income taxes at the effective rate of 40% are paid on December 31 each year. Name the account(s) presented in the financial statements that would have different amounts for 2021 if LIFO rather than FIFO had been used, and state the new amount for each account that is named

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Problem 8-07

	Financial Position as of
	12/31/19	12/31/20	12/31/21
Cash	$ 90,000	$130,000	$154,000
Accounts receivable	80,000	100,000	120,000
Inventory	120,000	140,000	176,000
Other assets	160,000	170,000	200,000
Total assets	$450,000	$540,000	$650,000
Accounts payable	$ 40,000	$ 60,000	$ 80,000
Other liabilities	70,000	80,000	110,000
Common stock	200,000	200,000	200,000
Retained earnings	140,000	200,000	260,000
Total liabilities and equity	$450,000	$540,000	$650,000

			Income for Years Ended
			12/31/20		12/31/21
Sales revenue		$900,000		$1,350,000
Less:	Cost of goods sold		505,000		756,000
	Other expenses		205,000		304,000
			710,000		1,060,000
Income before income taxes		190,000		290,000
	Income taxes (40%)		76,000		116,000
Net income		$114,000		$ 174,000

Other data:

1.	Inventory on hand at December 31, 2019, consisted of 40,000 units valued at $3.00 each.
2.	Sales (all units sold at the same price in a given year):

		2020-150,000 units @ $6.00 each	2021-180,000 units @ $7.50 each

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

		2020-150,000 units @ $3.50 each	2021-180,000 units @ $4.40 each

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

Name the account(s) presented in the financial statements that would have different amounts for 2021 if LIFO rather than FIFO had been used, and state the new amount for each account that is named.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps with 3 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.