Hoosier Inc. uses the LIFO inventory cost method to prepare the company's tax return. Which method must the companyuse to account for inventory on their financial statements? Assume US GAAP and rising costs.O FIFOLIFOO Weighted average or LIFOSpecific IdentificationO LIFO or FIFO, but not weighted average

If a business utilizes the Last-In, First-Out (LIFO) inventory cost method for tax purposes, it must…

Answered: Hoosier Inc. uses the LIFO inventory…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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FIFO and weighted average. But what if a company wants to use LIFO to report its inventory because of the significant tax benefit? How could dollar-value LIFO help them use FIFO for managerial purposes but LIFO for financial statement reporting?
Assume Maple Corporation has just completed the third year of its existence (year 3). The table below indicates Maple's ending book inventory for each year and the additional §263A costs it was required to include in its ending inventory. Maple immediately expensed these costs for book purposes. In year 2, Maple sold all of its year 1 ending inventory, and in year 3 it sold all of its year 2 ending inventory. Ending book inventory Additional $263A costs Ending tax inventory Year 1 $ 2,400,000 60,000 $ 2,460,000 Year 2 $ 2,700,000 70,000 $ 2,770,000 Year 3. $ 2,040,000 40,000 $ 2,080,000 Required: a. What book-tax difference associated with its inventory did Maple report in year 1? Was the difference favorable or unfavorable? Was it permanent or temporary?
Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.
1
The following information is taken from a company’s records. Costper Unit Market valueper Unit Inventory Item 1 (10 units) $39 $38 Inventory Item 2 (22 units) 19 19 Inventory Item 3 (12 units) 9 11 Applying the lower-of-cost-or-market approach, what is the correct value that should be reported on the balance sheet for the inventory? $fill in the blank 1
s
Which one of the following statements is true? a. Income manipulation is difficult under LIFO.b. Accounting principles do not require that the inventory cost flow approximate the physical flow of goods.c. Companies may use LIFO for tax purposes and FIFO in the financial statements.d. In periods of declining prices, LIFO will result in the payment of less income taxes.

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