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1. Problem 12-93A (Algorithmic) Accounting Alternatives and Financial Analysis

   Shady Deal Automobile Sales Company has asked your bank for a $100,000 loan to expand its sales facility. Shady Deal provides you with the following data:

   	2019		2018		2017
   Sales revenue	$6,100,000		$5,800,000		$5,400,000
   Net income	119,000		112,000		106,000
   Ending inventory (FIFO)*	665,000		600,000		500,000
   Purchases	5,370,000		5,105,000		4,860,000
   Depreciable assets	1,240,000		1,150,000		1,090,000

   * The 2016 ending inventory was $470,000 (FIFO).

   Your inspection of the financial statements of other automobiles sales firms indicates that most of these firms adopted the LIFO method in the late 1970s. You further note that Shady Deal has used 5% of depreciable asset cost when computing depreciation expense and that other automobile dealers use 10%. Assume that Shady Deal's effective tax rate is 25% of income before tax. Also assume the following:

   	2019	2018	2017
   Ending inventory (LIFO)*	$508,000	$495,000	$472,500

   *The 2016 ending inventory was $470,000 (LIFO).

   Required:

   1. Compute cost of goods sold for 20172019, using both the FIFO and the LIFO methods.

   	Cost of Goods Sold
   Year	FIFO Method	LIFO Method
   2017	$	$
   2018	$	$
   2019	$	$

   2. Compute depreciation expense for Shady Deal for 20172019, using both 5% and 10% of the cost of depreciable assets.

   	Depreciation Expense
   Year	10%	5%
   2017	$	$
   2018	$	$
   2019	$	$

   3. Recompute Shady Deal's net income for 20172019, using LIFO and 10% depreciation. (Don't forget the tax impact of the increases in cost of goods sold and depreciation expense.) Round calculations and answers to the nearest whole dollar.

   	Net income
   2017	$
   2018	$
   2019	$

   4. Conceptual Connection: Has Shady Deal appeared to materially changed its financial statements by the selection of FIFO (rather than LIFO) and 5% (rather than 10%) depreciation?

   • Yes
   • No

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