50.1K

Verified Solution

Link Copied!

The Mongo Oil Company, expecting that decreases in oil prices are only temporary, increases its monthly purchases as the price of oil decreases. Mongos monthly oil purchases follow: Period Quantity (bbl) Price/bbl First Quarter January 100,000 $25 February 100,000 25 March 100,000 25 Second Quarter April 125,000 20 May 125,000 20 June 125,000 20 Third Quarter July 150,000 18 August 150,000 18 September 150,000 18 Fourth Quarter October 200,000 15 November 200,000 15 December 200,000 15 Assumptions: The company has no beginning inventory. Sales are 100,000 barrels per month for the period January through June, and 150,000 per month for the period July through December. Mongo uses the LIFO inventory method. The companys tax rate is 40%. a. Compute the difference in each of the following dollar amounts that Mongo would report under its present accounting method (LIFO), as compared with use of the FIFO method (note: the solution does not require long calculations; focus on the differences between FIFO and LIFO levels, not the actual amounts). i. Inventory purchases ii. Ending inventory iii. COGS iv. Pretax income v. Income tax expense vi. Net income vii. CFO viii. Ending working capital b. Assume that Mongo liquidates its entire inventory at year-end. Discuss how the answers to part a would differ.

Answer & Explanation Solved by verified expert

See Answer