Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings

CA8-10 (FIFO and LIFO) Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, the management wishes to consider all of the effects on the company, including its reported performance, before making the final decision.

The inventory account, currently valued on the FIFO basis, consists of 1,000,000 units at $8 per unit on January 1, 2010. There are 1,000,000 shares of common stock outstanding as of January 1, 2010, and the cash balance is $400,000.

The company has made the following forecasts for the period 2010–2012.

Instructions
(a) Prepare a schedule that illustrates and compares the following data for Harrisburg Company under the FIFO and the LIFO inventory method for 2010–2012. Assume the company would begin LIFO at the beginning of 2010.
1. Year-end inventory balances.
2. Annual net income after taxes.
3. Earnings per share.
4. Cash balance.

Assume all sales are collected in the year of sale and all purchases, operating expenses, and taxes are paid during the year incurred.

(b) Using the data above, your answer to (a), and any additional issues you believe need to be considered, prepare a report that recommends whether or not Harrisburg Company should change to the LIFO inventory method. Support your conclusions with appropriate arguments.

Click here for the solution: Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

P 5–6: Metal Press

Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value. When the historical cost of the asset is updated, a price index is used to approximate replacement value. For example, a metal fabrication press, which bends and shapes metal, was bought seven years ago for $522,000. The company will add 19 percent to this cost, representing the change in the wholesale price index over the seven years. This new, higher cost figure is depreciated using the straight-line method over the same 12-year assumed life (no salvage value).

Required:
a. Calculate depreciation expense and book value of the metal press under both historical cost and price-level-adjusted historical cost.
b. In general, what is the effect on ROA of changing valuation bases from historical cost to current values?
c. The manager of the investment center with the metal press is considering replacing it because it is becoming obsolete. Will the manager’s incentives to replace the metal press change if the firm shifts from historical cost valuation to the proposed price-level adjusted historical cost valuation?

Click here for the solution: Your firm uses return on assets (ROA) to evaluate investment centers and is considering changing the valuation basis of assets from historical cost to current value

Case 6 Sigma Marketing Innovation in a Changing Environment

Case 6 Sigma Marketing Innovation in a Changing Environment

Synopsis: This case reviews the growth of a small, family-owned business, from a regional provider of generic printing services to a global provider of specialty advertising products. Throughout its history, Sigma Marketing has exhibited the uncanny ability to understand market opportunities and to adapt its strategic focus accordingly. As its marketing environment changes, Sigma Marketing gathers information from existing and potential customers to develop the most effective marketing strategy possible. Even in the face of changing technology, communication, and advertising methods, Sigma Marketing has managed to reinvent its mindset and strategies in order to remain successful.

AND SO ON

Questions for Discussion
1. Discuss potential key changes in technology, communications, and competition that Sigma will face in the future. Which will have the most impact on Sigma’s future marketing strategies?
2. Prepare a SWOT analysis for long-term strategic planning at Sigma Marketing.
3. Suggest some possible strategic initiatives that Sigma could pursue to continue its growth.

Click here for the solution: Case 6 Sigma Marketing Innovation in a Changing Environment