Acc201 Principles of Accounting - Decision Case Shelly Seashell Enterprises and Jeremy Feigenbaum Sy

Acc201 Principles of Accounting

Decision Case:
Suppose you are considering investing in two businesses, Shelly's Seashell Enterprises and Jeremy Feigenbaum Systems. The two companies are virtually identical, and both began operations at the beginning of the current year.

During the year, each company purchased inventory as follows:
Units Unit Cost Total Cost
Jan 4 10,000 4 40,000
Apr 6 5,000 5 25,000
Aug 9 7,000 6 42,000
Nov 27 10,000 7 70,000
Totals 32,000 $177,000

During the first year, both companies sold 25,000 units of inventory. In early January, both companies purchased equipment costing $143,000, with a 10-year estimated useful life and a $20,000 residual value.

Shelly uses the inventory and depreciation methods that maximize reported income (FIFO and straight-line). By contrast, Feigenbaum uses the inventory and depreciation methods that minimize taxes (LIFO and double declining-balance).

Both companies' trial balances at December 31 included the following:
Service Revenue 270,000
Operating Expenses 80,700

Requirements:
1. Prepare both companies' income statement
2. Write an investment letter to address the questions for your clients: Which company appears to be more profitable? Which company has more cash to invest in new projects? Which company would you prefer to invest in? Why?
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