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    Probablity Distribution Solution

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    abdul mateen
    This document contains an assignment with 7 questions regarding Merrimack Tractors and Movers' financial statements. It includes: 1) Calculations of COGS and net income for 2007-2008 using different inventory methods. 2) A 2008 performance statement using FIFO and an analysis of inventory costs. 3) An explanation of how inventory valuation methods like LIFO and FIFO can impact reported profits. 4) A discussion of how changing from LIFO to FIFO could be a more ethical approach given inflation and the company's ongoing operations. 5) A summary of the purpose of financial reporting for stakeholders.

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    Probablity Distribution Solution

    Uploaded by

    abdul mateen
    38 views4 pages
    This document contains an assignment with 7 questions regarding Merrimack Tractors and Movers' financial statements. It includes: 1) Calculations of COGS and net income for 2007-2008 using different inventory methods. 2) A 2008 performance statement using FIFO and an analysis of inventory costs. 3) An explanation of how inventory valuation methods like LIFO and FIFO can impact reported profits. 4) A discussion of how changing from LIFO to FIFO could be a more ethical approach given inflation and the company's ongoing operations. 5) A summary of the purpose of financial reporting for stakeholders.

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    This document contains an assignment with 7 questions regarding Merrimack Tractors and Movers' financial statements. It includes: 1) Calculations of COGS and net income for 2007-2008 using different inventory methods. 2) A 2008 performance statement using FIFO and an analysis of inventory costs. 3) An explanation of how inventory valuation methods like LIFO and FIFO can impact reported profits. 4) A discussion of how changing from LIFO to FIFO could be a more ethical approach given inflation and the company's ongoing operations. 5) A summary of the purpose of financial reporting for stakeholders.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    38 views4 pages

    Probablity Distribution Solution

    Uploaded by

    abdul mateen
    This document contains an assignment with 7 questions regarding Merrimack Tractors and Movers' financial statements. It includes: 1) Calculations of COGS and net income for 2007-2008 using different inventory methods. 2) A 2008 performance statement using FIFO and an analysis of inventory costs. 3) An explanation of how inventory valuation methods like LIFO and FIFO can impact reported profits. 4) A discussion of how changing from LIFO to FIFO could be a more ethical approach given inflation and the company's ongoing operations. 5) A summary of the purpose of financial reporting for stakeholders.

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    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 4

    Abdul Mateen 20110226

    Sayed Sohaib Ahmad 20110157


    Assignment : Merrimack Tractors and Movers

    Question 1
    COGS (2008) = (10,000*1700) +(10,000*1600) +(10,000*1500) +(10,000*1400) = 62000
    Ending inventory in 2008 = 75000-62000 = 13500 (same as 2007)
    2007 2008
    Sales 67000 80000
    COGS - 46000 -62000
    Gross margin 21000 18000
    Selling and admin expenses -10000 -10000
    Income before tax 11000 8000
    Tax -3850 -2800
    Net income 7150 5200

    Question 2
    Cost of Good Sold = (10000 *1400) + (5000*1500) + (10000*1600)+ (5000*1500) +
    (5000*900) + (5000*1700) = $58,000,000
    Performa statement

    Sales 80,000
    COGS - 58,000
    Gross margin 22,000
    Selling and admin expenses - 10,000
    Income before taxes 12,000
    Income taxes - 4,200
    Net income 7800

    Question 3
    2008 FIFO table
    Units cost/unit total cost

    Beginning Inventory 15000 900 13500


    Purhases, Q1 10000 1400 14000
    Purhases, Q2 10000 1500 15000
    Purhases, Q3 10000 1600 16000
    Purhases, Q4 10000 1700 17000
    Available for Sale 55000 75500
    Less Sales (40000) (50500)
    Ending Inventory 15000 25000

    Performa statement
    Sales 80,000
    COGS - 50,500
    Gross margin 29,500
    Selling and admin expenses - 10,000
    Income before taxes 19,500
    Income taxes - 6825
    Net income 12675

    Question 4
     If the prices are stable (remains 900 and doesn’t change) then any of the
    method be it LIFO, FIFO or AVCO, our COGS computed would be same.
     If the prices are decreasing, then FIFO will result in higher COGS and
    hence less profits and less tax (as compared to LIFO). But at liquidation
    both methods will balance out. (the difference would be resolved)

    Question 5
    The purpose of financial reporting is to provide information about a company’s
    performance (income statement and cash flow statement), financial position
    (balance sheet) and changes in financial position (statement of changes in equity)
    to the users of financial reports (creditors, equity holders, suppliers and other
    investors) for making an informed decision about providing resources to the
    company

    Question 6
    Colburn is not suggesting to martino that only earnings should be managed
    neglecting the business. He rather advises to manage both effectively. By
    changing the method from LIFO to FIFO in an inflationary environment along
    with the going concern, it would be more ethical to evaluate the inventory at more
    recent prices rather than older ones. Moreover, FIFO results in more tax than
    LIFO and with the assumption that the company would operate for foreseeable
    future, its better to pay more tax now then delaying it until liquidation (in case of
    LIFO).

    Question 7

     The company is having positive returns in the business but due to inflation,
    the cost of goods sold under LIFO (last in first out) is becoming is so
    higher that we end up with negative returns (although we are having
    positive returns in reality). But in FIFO it would be easier to show profits
    which would accurately depict the true economic condition of the
    company.
     Under LIFO method, the inventory is valued at historical (low) prices
    while in FIFO the inventory would be valued at most recent purchase
    prices , accurately depicting the value of the inventory.

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