Burnham Company Reported the Following Summarized Annual Data at the End

question 187

Essay

Burnham Company reported the following summarized annual data at the end of 2014: $\begin{array}{lr}\text { Sales revenue } & \$ 1,600,000 \\\text { Cost of goods sold } & 900,000 \\\text { Gross margin } & 700,000 \\\text { Operating expenses } & 400,000 \\\text { Income before income taxes } & 300,000 \\\hline\end{array}$ *Based on an ending FIFO inventory of $250,000.
The income tax rate is 30%. The controller of the company is considering a switch from FIFO to LIFO. He has determined that on a LIFO basis, the ending inventory would have been $205,000.
Instructions
(a) Restate the summary information on a LIFO basis.
(b) What effect, if any, would the proposed change have on Burnham's income tax expense, net income, and cash flows?
(c) If you were an owner of this business, what would your reaction be to this proposed change?

---

Definitions:

T Statistic

A type of statistic used in hypothesis testing, derived from the standardized difference between a sample mean and a hypothesized value of the population mean.

One-sample Z Statistic

A statistical measure used to determine how many standard deviations a single sample mean deviates from the population mean, assuming the population variance is known.

One-sample T Statistic

A statistical measure used to compare the mean of a single sample to a known or hypothesized population mean.

Null Hypothesis

In statistical hypothesis testing, a statement that there is no effect or no difference, and any observed deviation from this is due to sampling or experimental error.