23 Jun eighted average. 2. Using your answers from question 1 above, answer the f
eighted average.
2. Using your answers from question 1 above, answer the following:
1. What is the gross profit percentage under the FIFO Method?
2. What is net income under the LIFO method?
3. Which method would you recommend to BrightStar for tax purposes? Explain your recommendation.
4. If BrightStar also used the method that you recommended for tax purposes on its balance sheet, would BrightStars current ratio suffer, compared to the use of FIFO?
3. BrightStar uses the lower of FIFO cost or market method to value its inventory for reporting purposes at the end of the month. If inventory had a market replacement value of $44 per unit, what would BrightStar report in its balance sheet for inventory? Why?
Situation E: BlackBurn Company purchased the following on January 1, 2012:
• Office Equipment at a cost of $100,000 with an estimated useful life to the company of five years and a residual value of $10,000. The company uses the double-declining-balance method of depreciation for the equipment.
• Factory equipment at an invoice price of $780,000 plus shipping costs of $20,000. The equipment has an estimated useful life of 100,000 hours and no residual value. The company uses the units-of-production method of depreciation for the equipment.
• A patent at a cost of $450,000 with an estimated useful life of 15 years. The company uses the straight-line method of amortization for intangible assets with no residual value.
Use the information above to complete the following:
1. Prepare a partial depreciation schedule for 2012, 2013, and 2014 for the following assets. Round your answers to the nearest dollar.
1. Office equipment.
2. Factory equipment. The company used the equipment for 8,000 hours in 2012; 9,000 hours in 2013; and 8,500 hours in 2014.
2. On January 1, 2014, BlackBurn altered its corporate strategy dramatically. The company sold the factory equipment for $700,000 in cash. Record the entry related to the sale of the factory equipment.
3. On January 1, 2014, when the company changed its corporate strategy, its patent had estimated future cash flows of $300,000 and a fair value of $250,000. What would the company report on the income statement (account and amount) regarding the patent on January 2, 2014? Explain your answer. Hint: You may need to research this question using Internet sources.
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