(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:

Benefit Surpluses

The extra utility or satisfaction gained by consumers when the price they are willing to pay for a good or service exceeds the market price.

Willingness To Pay

The maximum amount an individual is prepared to offer for a good or service, reflecting the value they place on it.

Supply Curve

A graphical representation that shows the relationship between the price of a good or service and the quantity of that good or service that a supplier is willing and able to supply to the market.

Consumer Surplus

The difference between what consumers are willing to pay for a good or service and what they actually pay, representing the benefit to consumers.