(FIFO and LIFO) Harrisburg Company is considering changing its
inventory valuation method from FIFO to LIFO because of the potential tax
savings. However, management wishes to consider all of the effects on the
company, including its reported performance, before making the final
decision.
The inventory account, currently valued on the FIFO basis, consists of
1,000,000 units at $8 per unit on January 1, 2017. There are 1,000,000
shares of common stock outstanding as of January 1, 2017, and the cash
balance is $400,000.
The company has made the following forecasts for the period 2017–2019.
201 201 201
7
8
9
Unit sales (in millions of units) 1.1 1.0 1.3 Sales price per unit $10 $12 $12 Unit purchases (in millions of units) 1.0 1.1 1.2 Purchase price per unit $8 $9 $10 Annual depreciation (in thousands of dollars) $30 $30 $30
0
0
0 Cash dividends per share $0.1 $0.1 $0.1
5
5
5 Cash payments for additions to and replacement of plant and $35 $35 $35
equipment (in thousands of dollars)
0
0
0
Income tax rate 40% 40% 40% Operating expenses (exclusive of depreciation) as a percent
of sales 15% 15% 15% Common shares outstanding (in millions) 1 1 1 Instructions
(a)Prepare a schedule that illustrates and compares the following data
for Harrisburg Company under the FIFO and the LIFO inventory
method for 2017–2019. Assume the company would begin LIFO at the
beginning of 2017.
(1)Year-end inventory balances.
(2)Annual net income after taxes.
(3)Earnings per share.
(4)Cash balance.
Assume all sales are collected in the year of sale and all purchases,
operating expenses, and taxes are paid during the year incurred.
(b)Using the data above, your answer to (a), and any additional issues
you believe need to be considered, prepare a report that recommends
whether or not Harrisburg Company should change to the LIFO inventory method.
arguments. Support your conclusions with appropriate

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