(US GAAP) a and X Are Exactly Alike Except

question 24

Essay

. (U.S. GAAP) A and X are exactly alike except for their choice of accounting methods. A uses straight-line depreciation while X uses 200 percent declining balance depreciation. A uses FIFO and X uses LIFO inventory methods.

a. Both corporations issue 5,000 shares of $1 par value stock on January 1, for $15 per share.
b. Both A and X acquire equipment on January 1, for $40,000 cash. The equipment has a 5-year life and a $5,000 salvage value.
c. Both A and X purchase inventory as follows:
$\begin{array}{lll}\text { Date } & \# \text { Units } & \text { Unit Price }\\1 / 1 & 100 & \$ 100 \\7 / 1 & 150 & 110 \\11 / 1 &110& 115 \\\text { Total } & 360 &\end{array}$
d. Both A and X sell 200 units of inventory at $250 each. No credit sales are made.
e. Other expenses for the year, excluding depreciation, total $10,000.


Required:

Identify and give the balance of any balance sheet and income statement accounts that have different balances at year end for companies A and X based on the above information. Ignore any tax effects.

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Definitions:

Ledger

A comprehensive collection of a company's financial accounts, where transactions are recorded using a double-entry bookkeeping system.

Accrual Basis Accounting

An accounting method where revenues and expenses are recorded when earned or incurred, regardless of when the cash transactions occur.

Statement of Retained Earnings

A financial statement that shows the changes in a company's retained earnings over a specific period.

Net Income

The remaining profit of a company post deduction of all expenses, taxes, and costs from its total revenues.