Management of the Davidson Company Is Currently Considering the Possibility

question 50

Essay

Management of the Davidson Company is currently considering the possibility of changing from the FIFO method to the LIFO method of inventory valuation for income tax and financial reporting purposes. The company's president, Dan Davidson, is concerned that using LIFO will tend to distort the company's balance sheet over time. He believes that the difference between the current cost of the company's inventory and the reported LIFO valuation will tend to grow larger each year, and that the company's reported LIFO inventory valuation will be progressively understated in relation to current cost. Davidson Company relies heavily on short-term bank credit, and Mr. Davidson feels that the company's bankers will tend to downgrade the company's short-term debt-paying ability if a switch to LIFO is made.
Required:

Understand discretionary income and its importance in financial planning.

Recognize common long-term liabilities.

Identify different types of expenses (fixed, variable, discretionary).

Understand the basic components and formats of a résumé.

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Definitions:

Cash Prize

A monetary award given to an individual or group as recognition for achievement or as an incentive in competitions.

Throwing A Dart

An action involving skill and precision where a small, pointed missile is launched by hand toward a target, often used in games or competitions.

Probability Distribution

A mathematical function that provides the probabilities of occurrence of different possible outcomes for an experiment.

College Degree

A form of academic qualification received upon the successful completion of a program of study in higher education, typically at a college or university.