prepare a schedule that illustrates and compares the following data for harrisburg c 645763

(FIFO and LIFO) Harrisburg Company is considering changing its inventory valuation method from FIFO to LIFO because of the potential tax savings. However, the 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, 2012. There are 1,000,000 shares of common stock outstanding as of January 1, 2012, and the cash balance is $400,000.

The company has made the following forecasts for the period 2012–2014.

	2012	2013	2014
Unit   sales (in millions of units)	1.1	1	1.3
Sales   price per unit	$10	$12	$12
Unit   purchases (in millions of units)	1	1.1	1.2
Purchase   price per unit	$8	$9	$10
Annual   depreciation (in thousands of dollars)	$300	$300	$300
Cash   dividends per share	$0.15	$0.15	$0.15
Cash   payments for additions to and replacement of plant and equipment (in   thousands of dollars)	$350	$350	$350
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 2012–2014. Assume the company would begin LIFO at the beginning of 2012.

(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. Support your conclusions with appropriate arguments.