Mineral Waters Has Used the FIFO Cost Flow Assumption Since

Essay

Mineral Waters has used the FIFO cost flow assumption since it was first organized in 20X4. Results have been as follows: $\begin{array}{|l|r|r|r|r|}\hline & 20 \times 4 & 20 \times 5 & 20 \times 6 & 20 \times 7 \\\hline \text { Reported net income - FIFO }&\$ 26,250 & \$ 45,000 & \$ 48,750 & \$ 67,500 \\\hline \text { Reported ending inventories - FIFO } & 82,250&142,000&164,000&173,000\\\hline\text { Reported ending Inventories - Average } \\\text { cost }& 78,500 &101,650&117,500&135,500\\\hline\end{array}$ Required:
1. Restate net income assuming use of the average cost method since the company's inception.
2. What inventory cost flow policy would you expect this company to adopt if it was trying to: a. Minimize income tax payments. b. Report maximum inventory values on the balance sheet.