Mineral Waters Has Used the FIFO Cost Flow Assumption Since

question 54

Essay

Mineral Waters has used the FIFO cost flow assumption since it was first organized in 20X4. Results have been as follows: $\begin{array}{|l|r|r|r|r|}\hline & 20 \times 4 & 20 \times 5 & 20 \times 6 & 20 \times 7 \\\hline \text { Reported net income - FIFO }&\$ 26,250 & \$ 45,000 & \$ 48,750 & \$ 67,500 \\\hline \text { Reported ending inventories - FIFO } & 82,250&142,000&164,000&173,000\\\hline\text { Reported ending Inventories - Average } \\\text { cost }& 78,500 &101,650&117,500&135,500\\\hline\end{array}$ Required:
1. Restate net income assuming use of the average cost method since the company's inception.
2. What inventory cost flow policy would you expect this company to adopt if it was trying to: a. Minimize income tax payments. b. Report maximum inventory values on the balance sheet.

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Definitions:

Minority Groups

Social groups that are differentiated from the majority in a society through cultural, ethnic, racial, or religious characteristics.

Highly Cohesive

Highly cohesive describes a group or material that sticks together strongly, in social contexts referring to a group closely united in purpose or function.

Strategic Planning

The process of defining a direction for an organization by setting goals, determining actions to achieve the goals, and mobilizing resources to execute the actions.

External Threat

A danger or risk stemming from the environment outside of oneself or one's organization.