An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry. The intern noticed that the client used the FIFO method of determining ending inventory and cost of goods sold. When she asked a colleague why the firm used FIFO instead of LIFO, she was told that the client used FIFO to minimize its income tax liability. This response puzzled the intern because she thought that LIFO would minimize income tax liability. Required: What would you tell the intern to resolve the confusion?

An accounting intern for a local CPA firm was reviewing the financial statements of a client in the electronics industry. The intern noticed that the client used the FIFO method of determining ending inventory and cost of goods sold. When she asked a colleague why the firm used FIFO instead of LIFO, she was told that the client used FIFO to minimize its income tax liability. This response puzzled the intern because she thought that LIFO would minimize income tax liability. Required: What would you tell the intern to resolve the confusion?

SWFT Essntl Tax Individ/Bus Entities 2020

23rd Edition

ISBN:9780357391266

Author:Nellen

Publisher:Nellen

Chapter4: Gross Income

Section: Chapter Questions

Problem 19P

See similar textbooks

Similar questions

You are employed as an accountant for Innovative Computing. Your company is in the process of signing a large contract with an electronics components supplier. You have a friend who works for the electronics components supplier, and you were told the company having trouble paying bills. You ask to review the financial statements of the supplier. 1. Which financial statements would you find most helpful to determine the creditworthiness of the supplier? What information from the financial statements would you use to either support or disprove your friend’s claims? 2. What are the four basic financial statements? What is their purpose and what does each one tell you about a company? 3. How are the four financial statements interrelated? Which line items are used to prepare other statements? 4. In your opinion, explain which financial statement you think is the most important?
You are an auditor at a public accounting firm. You and your team are entrusted by Partner to handle clients engaged in the home appliance retail business. Your client is a company that has go public. The client's financial statement in the previous year reported a loss, however this year reported a material gain. After you check, it turns out that the client reports income that is not much different from the previous year, however, there can be a profit due to the decrease in Cost of Goods Sold (COGS). The client reports that the amount of inventory has increased drastically, even though sales have not increased and the account payable balance is almost the same as in previous years, this has led to suspicion of a double counting scheme in the client's inventory. In addition, when a random check was carried out incidentally at one of the client's warehouses, it was found that many inventory were out of date but the client did not make adjustments. Question:a. If you wanted to perform…
You have just been hired as a consultant to Gilbert Industries, a newly formed company. The company president, Mindy Grayson, is seeking your advice as to the appropriate inventory method the company should use to value its inventory and cost of goods sold. Ms. Grayson has narrowed the choice to LIFO and FIFO. She has heard that LIFO might be better for tax purposes, but FIFO has certain advantages for financial reporting to investors and creditors. You have been told that the company will be profitable in the first year and for the foreseeable future.Identify (list) the issues that the company president, Mindy Grayson, should consider in choosing between the LIFO and FIFO methods.
You have just been hired as a consultant to Gilbert Industries, a newly formed company. The company president, Mindy Grayson, is seeking your advice as to the appropriate inventory method Gilbert should use to value its inventory and cost of goods sold. Ms. Grayson has narrowed the choice to LIFO and FIFO. She has heard that LIFO might be better for tax purposes, but FIFO has certain advantages for financial reporting to investors and creditors. You have been told that the company will be profitable in its first year and for the foreseeable future. Required: Prepare a report for the president describing the factors that should be considered by Gilbert in choosing between LIFO and FIFO.
"Dennis Jones, an old college friend, contacted you last week. Dennis owns several car washes, and he believes that financial statement fraud may be occurring. (He pays each car wash manager a bonus if a certain level of profits is earned and is worried that some managers are overstating profits to earn a higher bonus.)Dennisiscomingovertoday to see whether you can help him determine if his suspicions are valid. He is bringing along the financial statements for each car wash (income statements, balance sheets, and cash flow statements) for the last five years.1.What kind of financial statement analysis could you perform to help Dennis detect possible fraud?"
You have just been hired as a consultant to Tangier Industries, a newly formed company. The company president, John Meeks, is seeking your advice as to the appropriate inventory method Tangier should use to value its inventory and cost of goods sold. Mr. Meeks has narrowed the choice to LIFO and FIFO. He has heard that LIFO might be better for tax purposes, but FIFO has certain advantages for financial reporting to investors and creditors. You have been told that the company will be profitable in its first year and for the foreseeable future. Required: Prepare a report for the president describing the factors that should be considered by Tangier in choosing between LIFO and FIFO.
Assume you are the management accountant for the Foleo Group. James and Leon have called you and the CFO into a meeting to discuss concerns they have with the number of SliFones that are being returned by customers under warranty. They have pulled some numbers from the accounting system and elsewhere regarding not only the warranty costs, but also other expenses associated with the quality of the phones for the current year. The directors have handed you the below costs and asked you to look into why faulty SliFones are being returned by customers. \table[[Quality Activity,\table[[Cost of Quality],[Activity]]],[Testing phones during production processes,$25,000
Mohammed was recently interviewed for an accounting job . His employer told him that the job emphasizes objectivity and verifiability and involves preparing reports to be primarily used by external users. Mohammed is probably going to work as: a. A Financial accountant b. A Human resource manager. c. Management accountant d. None of the given answers e. A Marketing specialist
Assume that you are currently working as an accountant, and your manager has to take an unexpected sick leave. Because you did very well in your accounting classes, the Senior Accountant asks you to step up and help with the review of reconciliations. What would be your first step? Maybe you would dive right into it, assuming you would figure out what to do as you moved through all the existing reconciliations, or maybe you would ask for a copy of policies and procedures for this task if any exist, so you could find instructions without asking the Senior Accountant constantly what to do. In addition to reviewing reconciliations, you will need to review disclosures to financial statements. How would you know if all the necessary disclosures were prepared and contained correct information?
Tana Thorne is an accountant who aspires to become a partner in a public accounting company. Thorne is invited by Allnet Company's management to submit a proposal to audit Allnet's financial accounts. When considering the audit charge, Allnet's management offers a price range based on Allnet's reported earnings. The more the profit, the greater the audit fee payable to Thorne's business. What ethical considerations apply to this situation? Explain.
Tana Thorne works for a public accounting company and aspires to be a partner one day. Thorne is invited by Allnet Company's management to create a proposal to audit Allnet's financial accounts. When considering the audit charge, Allnet's management offers a price range in which the amount is determined by Allnet's reported earnings. The more the profit, the greater the audit fee paid to Thorne's business. Describe some of the ethical concerns that influenced your recommendation.
Mthembu is a financial accounting student at Mancosa involved in an internship at Inca Financial Company. The supervisor want to test his knowledge of the financial statements and asked him to identify which of the statements below is false? OA. The financial result of an enterprise is a measure of the profit or loss that the enterprise made over a certain period of time O B. Assels are the possessions of a business that have monetary value OC. A Statement of Comprehensive income shows the financial position of an entity on a certain date O D. Liabilities are the obligations of an entity