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Amber MooreACTIVITY 82TEST YOUR UNDERSTANDINGPurpose:•Compare effects of the inventory cost-flow assumptions FIFO and LIFO on thefinancial statements.•Compare effects of the depreciation method (SL or DDB) on the financial statements.•Prepare the income statement, balance sheet, and the statement of cash flows usingdifferent accounting methods.•Understand how the choice of different accounting methods affects cash and accrualaccounting.Frasco and Lasco are virtually identical; both companies began operations at the beginning of the currentyear and during the year purchased inventory as follows:Jan 410,000units at $4 =$ 40,000Apr 610,000units at $5 =50,000Aug 910,000units at $6 =60,000Nov 310,000units at $7 =70,00040,000$220,000During the first year, both companies sold 25,000 unitsof inventory. Frascouses the first-in, first-out(FIFO)method, and Lascouses last-in, first-out (LIFO)method for inventory.In early January both companies purchased equipment costing $200,000with a 10-year estimated usefullife and no residual value. Frascouses