Explain why proponents of LIFO argue that it provides a better match of revenue and expenses. In what situations would it not provide a better match? Be specific.The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle East. The company is currently paying $0.80 per gallon. If they are willing to enter an agreement in November 2021 to purchase a million gallons of heating oil during the winter of 2022, their supplier will guarantee the price at $0.80 per gallon. However, if the winter is a mild one, Esquire would not be able to sell a million gallons unless they reduced their retail price and thereby increase the risk of a loss for the year. On the other hand, if the wholesale price did increase substantially, they would be in a favorable position with respect to their competitors. The company’s fiscal year-end is December 31. Discuss the accounting issues related to the purchase commitment that Esquire is considering.

Inventory Valuation: An inventory valuation is the financial sum related to the products in the…

Answered: Explain why proponents of LIFO argue…

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ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

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Explain why proponents of LIFO argue that it provides a better match of revenue and expenses. In what situations would it not provide a better match? Be specific.
The management of the Esquire Oil Company believes that the wholesale price of heating oil that they sell to homeowners will increase again as the result of increased political problems in the Middle East. The company is currently paying $0.80 per gallon. If they are willing to enter an agreement in November 2021 to purchase a million gallons of heating oil during the winter of 2022, their supplier will guarantee the price at $0.80 per gallon. However, if the winter is a mild one, Esquire would not be able to sell a million gallons unless they reduced their retail price and thereby increase the risk of a loss for the year. On the other hand, if the wholesale price did increase substantially, they would be in a favorable position with respect to their competitors. The company’s fiscal year-end is December 31. Discuss the accounting issues related to the purchase commitment that Esquire is considering.

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