Which ONE reporting option would you recommend? Why (relative advantages)?

Magnolia Inc. is a profitable new company that has good prospects for growth.  It is nearing the end of its first year in business and the president Mr. James must make some decisions regarding accounting policies for financial reporting to stockholders. Magnolia's  controller and certified public accountant have gathered the following information (see attachment #1, background).

ACRS accelerated depreciation and flow-through of the investment credit will be used for tax calculation and payment purposes regardless of the method chosen for reporting to stockholders.  For all other items, assume that the same method used for financial accounting is used for tax purposes.  Use the format provided herein for the following requirements:

1) Prepare a columnar income statement.  In column 1, show the results using LIFO, accelerated depreciation (assumed equal to ACRS depreciation), immediate expensing of store-opening costs, and amortization of the investment credit.  Show earnings per share as well as net income.  

In successive columns, show the income statement and earnings per share of substituting the alternative methods:  column 2, FIFO inventory; column 3, straight-line depreciation; column 4, amortization of store-opening costs; column 5, flow-through of investment credit.  In column 6, show the total results of choosing all the alternative methods (columns 2 through 5).  Note that in columns 2 through 5, only single changes from column 1 should be shown; that is column 3 does not show the effects of columns 2 and 3 together, nor does column 4 show the effects of columns 2, 3, and 4 together.

2.Prepare an end-of-period columnar balance sheet consistent with requirements of #1 above.
3.Prepare a columnar statement of cash flows consistent with requirements of #1 above.
4.Express all numerical data in thousands (omit 000), and comment on the results.
5.Which option would you recommend (select one only)?  Why (relative advantages)?

I have done the financial statements (see attachment 2), but would like someone to check my work.  The first column in the financial sheets represents the baseline handling of the statements.  That is to say, Magnolia reports inventory using LIFO, accelerated depreciation (assumed equal to ACRS depreciation), immediate expensing of store-opening costs, and amortization of the investment credit.

Each subsequent column changes the handling of one (and only one) reporting method.  The last column changes the handling of all 4 reporting methods (inventory, appreciation, expensing of store openign costs, and the handling of the tax credit).

Whew...that's a lot of info, I know.  I feel fairly confident with what I have done, but I do not know how to interpret what I see (assuming its correct!!)  that's question 5 above:

Which option would you recommend (select one only)?  Why (relative advantages)?  The teacher suggested the following:

"Comment on whatever you think suitable.  Among others, you might address the implications of the substantially different net incomes produced; the value of the cash flow statement; the usefulness of ratios; the measurement of performance; recommendations for management or others; et al"

Attached file(s):

Magnolia_background.doc  View File

Magnolia_finan_stmnt.xls  View File