Chapter 8, Problem 4CA

To determine

Given: S Corp., a household appliances dealer, purchases its inventories from various suppliers. S Corp. has consistently stated its inventories at FIFO cost.

Additional Information: Shawnee is considering alternate methods of accounting for the cash discounts it takes when paying its suppliers promptly. From a theoretical standpoint, discuss the acceptability of each of the following methods.

(a)

To discuss: The acceptability of financial income when payments are made.

To determine

(b)

To discuss: The acceptability of financial income when there is reduction of cost of goods sold for the period when payments are made.

To determine

(c)

To discuss: The acceptability of financial income when there is direct reduction of purchase cost.