I need help with #2 which inventory method would you recommend for reporting? P

Question

I need help with #2 which inventory method would you recommend for reporting?

P Company's fiscal year runs from January to December 31. P Co. acquires and installs into operations a new truck on October 1,2013 at a total cost of $360,000 and has an estimated useful life of four years and estimated salvage value of $40,000. Required Prepare a depredation schedule showing Net Book value (beginning and ending), depreciation expense, and accumulated depreciation for the asset. Prepare one schedule for each method: Straight-line Double-declining balance K Company receives an offer for the truck for $140,000 at the end of the third year What factors should K Company consider in determining whether to sell or keep the truck? Assume the truck is sold. Prepare the appropriate journal entries showing sale of the truck under each depreciation method. Which inventory method would you recommend (or reporting for income tax purposes? Why? The company is operating in an inflationary environment. Which method should the company use to maximize inventory valuation? Why? Should the replacement cost be used to value the inventory for any of the methods? Why?

Explanation / Answer

For Income tax Purpose ,we will select that method which generates lower profit(so that we have to pay less tax) .so Inventory method with highest cost of goods sold will generate lower profit (as revenue is same under all method) ,so that method will be selected.

WHen we make calculation ,FIFO is a method under which inventory has highest cost of good sold ,so that method will be selected.

Also as price is showing decreasing trend ,FIFO method should be selected.

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