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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Emley Company has been using the average cost method of inventory valuation for 10 years, since it began operations. Its 2019 ending inventory was $40,000, but it would have been $60,000 if FIFO had been used. Thus, if FIFO had been used, Emley's income before income taxes would have been Select one: a. $20,000 greater in 2019. b. $20,000 less over the 10-year period. c. $20,000 greater over the 10-year period. d. $20,000 less in 2019.
The home office bills its branch at 40% above cost. During the year 2020, goods costing 150,000 were shipped to the branch. The account “allowance for overvaluation of branch inventory”, after adjustment, shows a balance of P25,000 at the end of the year. Compute the amount of ending inventory at: A. Billed Price *
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…
During 2017, Teal Mountain Inc. changed from LIFO to FIFO inventory pricing. Teal Mountain began operations in 2015 and its pretax income in 2016 and 2015 under LIFO was $470,000 and $562,000, respectively. Pretax income using FIFO pricing in the prior years would have been $504,000 in 2015 and $615,000 in 2016. In 2017, Teal Mountain reported pretax income using FIFO pricing of $577,000. Show comparative income statements for Teal Mountain beginning with “Income before income tax,” as presented in the 2017 income statement. The tax rate for all years is 30%. 2017 2016 2015 Income before income tax $enter a dollar amount $enter a dollar amount $enter a dollar amount Income tax enter a dollar amount enter a dollar amount enter a dollar amount Net Income $enter a total amount $enter a total amount $enter a total amount
The Cecil Booker Vending Company changed is method of valuing inventory from the average cost method to the FIFO cost method at the beginning of 2021. At December 31, 2020, inventories were $130,000 (average cost basis) and were $134,000 a year earlier. Cecil-Booker’s accountants determined that the inventories would have totaled $175,000 at December 31, 2020, and $180,000 at December 31, 2019, if determined on a FIFO basis. A tax rate of 25% is in effect for all years. One hundred thousand common shares were outstanding each year. Income from continuing operations was $500,000 in 2020 and $625,000 in 2021. There were no discontinued operations either year. Required: Prepare the journal entry at January 1, 2021, to record the change in accounting principle. (All tax effects should be reflected in the deferred tax liability account) Prepare the 2021-2020 comparative income statements beginning with income from continuing operations (adjusted for any revisions) include per share…
Carswell Electronics adopted the dollar-value LIFO method on January 1, 2018, when the inventory value ofits one inventory pool was $720,000. The company decided to use an external index, the Consumer Price Index(CPI), to adjust for changes in the cost level. On January 1, 2018, the CPI was 240. On December 31, 2018, inventory valued at year-end cost was $880,000 and the CPI was 264.Required:Calculate the inventory value at the end of 2018 using the dollar-value LIFO method.
Flay Foods has always used the FIFO inventory costing method for both financial reporting and tax purposes. At the beginning of 2021, Flay decided to change to the LIFO method. As a result of the change, net income in 2021 was $76 million. If the company had used LIFO in 2020, its cost of goods sold would have been higher by $7 million that year. Flay's records of inventory purchases and sales are not available for 2019 and several previous years. Last year, Flay reported the following net income amounts in its comparative income statements: ($ in millions) Net income 2018 2019 2020 $76 $78 $80 Required: 1. Prepare the journal entry at the beginning of 2021 to record the change in accounting principle. (Ignore income taxes.) 3. What amounts will Flay report for net income in its 2019-2021 comparative income statements?
I could use some help with homework can you explain how to do this? A mistake was made when counting the ending inventory at December 31, 2018: it was recorded incorrectly as $50,000 (not the correct $60,000). Ending inventory for 2019 was recorded correctly. The effect of this error on the firm's income would be: Group of answer choices -2018 income would be overstated by $10,000. -2018 and 2019 income would be understated by $10,000 for each year. -2018 income would be correct but 2019 would be overstated. -2018 income would be understated by $10,000 and 2019 income would be overstated by $10,000, the errors cancel each other out after 2 years. -None of the above.
In 2020, Gail changed from the lower of cost or market FIFO method to the LIFO inventory method. The ending inventory for 2019 was: (attached table) Item C was damaged goods, and the replacement cost used was actually the esti- mated selling price of the goods. The actual cost to replace item C was $32,000. What is the correct beginning inventory for 2020 under the LIFO method? What immediate tax consequences (if any) will result from the switch to LIFO?
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.
This problem consists of TWO parts Part One: Galaxy Corporation has a beginning inventory in 2023 of $1,400,000 and an ending inventory of $1,694,000. The price level has increased from 100 at the beginning of 2023 to 110 at the end of 2023. Calculate the ending inventory value using the dollar value LIFO method. Part Two: At the end of 2024, Galaxy's inventory is $1,886,000 in terms of a price level of 115 which exists at the end of 2024. Calculate the inventory value at the end of 2024 using the dollar value LIFO method. Problem Five (4 points) Maxwell Corporation provides you with the following inventory related to its inventory at December 31, 2023: Inventory Original Cost Replacement Net Realizable Net Realizable Appropriate Item per Unit Cost Value Value Less Inventory Value A $.65 $.45 B.45.40 Normal Profit at 12/31/23 C.70.75 D.75.65 E.90.85 The normal selling price is $1.00 per unit for All items. Disposal costs amount to 10% of the selling price and a normal profit is 30% of…
Heinz Company began operations on January 1, 2019, and uses the FIFO method in costing its raw material inventory. Management is contemplating a change to the LIFO method and is interested in determining what effect such a change will have on net income. Accordingly, the following information has been developed:Final Inventory 2019 2020FIFO ₱640,000 ₱ 712,000LIFO 560,000 636,000Net Income (computed under the FIFO method) 980,000 1,030,000Based on the above information, a change to the LIFO method in 2020 would result in net income for 2020 ofa. ₱1,070,000 c. ₱954,000b. ₱1,030,000 d. ₱950,000

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