LIFO was designed to protect cash flow in industries where prices increase rapidly. It has been used for both tax and financial statement reporting since the 1930s. The higher cost of goods sold under LIFO in these circumstances results in lower reported profit than under FIFO. In the 2012 budget, President Obama has threatened to repeal LIFO. If Exxon uses FIFO for its inventory valuation, calculate the cost of ending inventory and cost of goods sold if ending inventory is 110 barrels of crude oil: Beginning inventory and purchases January 1 March 1 June 1 September 1 December 1 Cost of ending inventory Cost of goods sold Barrels 139 64 79 89 64 435 Barrel cost $ 94 103 97 92 102 Total cost $ 13,066 6,592 7,663 8,188 6,528 $ 42,037
LIFO was designed to protect cash flow in industries where prices increase rapidly. It has been used for both tax and financial statement reporting since the 1930s. The higher cost of goods sold under LIFO in these circumstances results in lower reported profit than under FIFO. In the 2012 budget, President Obama has threatened to repeal LIFO. If Exxon uses FIFO for its inventory valuation, calculate the cost of ending inventory and cost of goods sold if ending inventory is 110 barrels of crude oil: Beginning inventory and purchases January 1 March 1 June 1 September 1 December 1 Cost of ending inventory Cost of goods sold Barrels 139 64 79 89 64 435 Barrel cost $ 94 103 97 92 102 Total cost $ 13,066 6,592 7,663 8,188 6,528 $ 42,037
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:**Understanding LIFO and FIFO Inventory Valuation Methods**
LIFO (Last-In, First-Out) is a method designed to protect cash flow in industries where prices increase rapidly. It has been used since the 1930s for both tax and financial statement reporting. Under LIFO, the higher cost of goods sold in these circumstances results in lower reported profits compared to FIFO (First-In, First-Out).
In 2012, President Obama proposed repealing LIFO. If a company like Exxon uses FIFO for inventory valuation, it impacts how the ending inventory and cost of goods sold (COGS) are calculated, especially if the ending inventory is 110 barrels of crude oil.
### Inventory Data Table
| Beginning inventory and purchases | Barrels | Barrel cost | Total cost |
|-----------------------------------|---------|-------------|------------|
| January 1 | 139 | $94 | $13,066 |
| March 1 | 64 | $103 | $6,592 |
| June 1 | 79 | $97 | $7,663 |
| September 1 | 89 | $92 | $8,188 |
| December 1 | 64 | $102 | $6,528 |
| **Total** | **435** | | **$42,037**|
### Calculations Needed
- **Cost of ending inventory**
- **Cost of goods sold**
This table and the calculations illustrate how inventory valuation impacts financial reporting, providing insight into how LIFO and FIFO methodologies can influence a company’s financial management strategies.
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