LIFO was designed to protect cash flow in industries where prices increase rapidly. It has been used for both tax and financialstatement reporting since the 1930s. The higher cost of goods sold under LIFO in these circumstances results in lower reported profitthan 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 purchasesJanuary 1March 11June 1September 1December 11Cost of ending inventoryCost of goods soldBarrels12550657550365Barrel cost$ 951019890103Total cost$ 11,8755,0506,3786,7505,150$ 35,195

Lets understand the basics.Cost of goods sold and ending inventory can be calculated using,(1)…

Answered: LIFO was designed to protect cash flow…

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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Indicate the assumption or principle that is most clearly violated using the following terms, chosen from the terms listed: 1. Dollar Saver has 20,000 Model 44G cell phones in inventory at a cost of $64 each. Due to the advancement of technology and newer models available, only 4 of Model 44G phones were sold last month. To avoid recognizing a loss on writing off this inventory, Dollar Saver has decided not to issue financial statements until at least half of the remaining Model 44G phones have been sold. select an appropriate term 2. Homer Bates, president of Bates Machinery, took an iPod Touch case out of inventory to use as a birthday present for his son. The cost was debited to Supplies Expense. select an appropriate term 3. Wilson, Inc. made no entry to record depreciation on its equipment for 2014. select an appropriate term…
Aquatic Equipment Corporation decided to switch from the LIFO method of costing inventories to the FIFO method at the beginning 2021. The inventory as reported at the end of 2020 using LIFO would have been $66.000 higher using FIFO. Retained earnings at th end of 2020 was reported as $840,000 (reflecting the LIFO method). The tax rate is 40%. Required: 1. Calculate the balance in retained earnings at the time of the change (beginning of 2021) as it would have been reported if FIFO had been used in prior years. 2. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. Complete this question by entering your answers in the tabs below.
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Tulip Company decided to change from LIFO to FIFO inventory costing, effective January 1, 2020. The following data were available: Year Pretax Operating Excess of FIFO Ending Inventory Income using LIFO over LIFO Ending Inventory 2020 $40,000 $8,000 2019 20,000 7,000 2018 30,000 4,000 The income tax rate is 35%. The company began operations on January 1, 2018, and has paid no dividends since inception. Required: Answer the following questions relating to the 2019-2020 comparative financial statements. a. What is net income for 2020? b. What is restated net income for 2019? c. Prepare the 2019 statement of retained earnings as it would appear in the comparative 2019-2020 financial statements.
In 2021, Hopyard Lumber changed its inventory method from LIFO to FIFO. Inventory at the end of 2020 of $123,000 would have been $137,000 if FIFO had been used. Inventory at the end of 2021 is $150,000 using the new FIFO method but would have been $145,000 if the company had continued to use LIFO. What is the effect of the change on 2021 cost of goods sold?
We are considering the purchase of a $760,000 computed based inventory management system. It is in class 10 with a CCA rate of 30 per cent. The computer has a four-year life. It will be worth $30,000 at that time. The system would save us $60,000 pre-tax in inventory-related cost. The relevant tax rate is 28%. Because the new setup is more efficient than our existing one, we would be able to carry less total inventory and thus free $45,000 in net working capital. The required return is 10 percent. Required 1. Calculate the present value of CCA tax shield. 2. Explain why the CCA tax shield is consider a source of cash-inflow.
The directors of Burwood Ltd are disappointed by the draft profit for the year ended 30 June 2020, though it is not yet finalized. Brad Pitt, the company’s assistant accountant, has made the following suggestion as he believes the reported profit may be improved.The value of Burwood’s inventory at 30 June 2020 on the first-in, first-out (FIFO) basis is $80,000,000, however on the average cost basis (AVCO) it would be valued at $72,000,000. By adopting AVCO, Brad Pitt says the company would improve its profit for the year ended 30 June 2020 by $8,000,000. Burwood Ltd’s inventory at 30 June 2019 was reported as $60,000,000 on the FIFO basis, however on the AVCO basis it would have been reported as $53,600,000.Required:Explain how the company should treat the type of accounting change described above in preparing financial statements and how the accounting change affects the profits in 2020 in accordance with AASB 108 “Accounting Policies, Changes in AccountingEstimates and Errors”
piotua incone as of year-end 2015? Explain. Assume GE has a 35% income tax rate. As of the 2015 year-end, how much has GE saved in by choosing LIFO over FIFO method for costing inventory? Has the use of LIFO i creased GE's cumulative taxes paid? d increased or de e. What effect has the use of LIFO inventory costing had on GE's pretax income and tax expense 2015 only (assume a 35% income tax rate)? E6-25) Computing Cost of Sales and Ending Inventory Howell Company has the following financial records for the current period. Units Unit Cost Beginning inventory . .. 150 $100 96 92 90 #2 500 Ending inventory is 350 units. Compute the ending inventory and the cost of goods sold for the current period using (a) first-in, first-out, (b) average cost, and (c) last-in, first-out. Analyzing an Inventory Footnote Disclosure The inventory footnote from Deere & Company's 2015 10-K follows. E6-26. Inventories Most inventories owned by Deere& Company and its U.S equipment subsidiar- es are valued at…
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