The 1970s were a period of historically high inflation. The 1976 financial statements of Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are stated at the lower of cost or market. In 1976 the company changed its method of accounting from first-in, first-out (FIFO) to last-in, first-out (LIFO) for most of its U.S. inventories. The change to LIFO reduced net income in 1976 by $81 million or $0.86 a share. There is no effect on prior years' earnings resulting from the change to LIFO in 1976 and, accordingly, prior years' earnings have not been restated. If the FIFO method of inventory accounting had been used by the company, inventories on December 31, 1976, would have been $166 million higher than reported. Required: 1. Explain the arguments that must have been used in favor of LIFO for the management of Ford to accept a reduction in net income of $81 million.

The 1970s were a period of historically high inflation. The 1976 financial statements of Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are stated at the lower of cost or market. In 1976 the company changed its method of accounting from first-in, first-out (FIFO) to last-in, first-out (LIFO) for most of its U.S. inventories. The change to LIFO reduced net income in 1976 by $81 million or $0.86 a share. There is no effect on prior years' earnings resulting from the change to LIFO in 1976 and, accordingly, prior years' earnings have not been restated. If the FIFO method of inventory accounting had been used by the company, inventories on December 31, 1976, would have been $166 million higher than reported. Required: 1. Explain the arguments that must have been used in favor of LIFO for the management of Ford to accept a reduction in net income of $81 million.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Similar questions

The 1970s were a period of historically high inflation. The 1976 financial statements of Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are stated at the lower of cost or market. In 1976 the company changed its method of accounting from first-in, first-out (FIFO) to last-in, first-out (LIFO) for most of its U.S. inventories. The change to LIFO reduced net income in 1976 by $81 million or $0.86 a share. There is no effect on prior years' earnings resulting from the change to LIFO in 1976 and, accordingly, prior years' earnings have not been restated. If the FIFO method of inventory accounting had been used by the company, inventories on December 31, 1976, would have been $166 million higher than reported. Required: 2. Explain the disadvantages that are likely to result from the adoption of LIFO.
The inventory footnate from Deere & Company's 2018 10-K follows. Inventories A majority of Inventory owned by Deere & Company and its U.S. equipment subsidiaries are valued at cost, on the "last-in, first-out" (LIFO) basis. Remaining Inventories are generally valued at the lower of cost, on the "first-in, first-out" (FIFO) basis, or net realizable value. The value of gross inventories on the LIFO basis at October 28, 2018, and October 29, 2017, represented 54 percent and 61 percent, respectively, of worldwide gross inventories at FIFO value. If all Inventories had been valued on a FIFO basis, estimated Inventories by major classification at October 28, 2018, and October 29, 2017, in millions of dollars would have been as follows: 2018 2017 $2,233 $1,688 776 4,777 3,182 7,786 5,365 1,637 1,461 $ millions Raw materials and supplies Work-in-process Finished goods and parts Totalvelue Less adjustment to LIFO value 1,637 Inventories 495 $6,149 $3,904 This footnote reveals that not all of…
Acme Enterprises, a hypothetical company, manufactures computers and prepares itsfinancial statements in accordance with IFRS. In 2008, the cost of ending inventory was€5.2 million but its net realizable value was €4.9 million. Th e current replacement costof the inventory is €4.7 million. Th is figure exceeds the net realizable value less a normalprofit margin. In 2009, the net realizable value of Acme’s inventory was €0.5 milliongreater than the carrying amount.1. What was the eff ect of the write-down on Acme’s 2008 financial statements? Whatwas the eff ect of the recovery on Acme’s 2009 financial statements?2. Under U.S. GAAP, what would be the eff ects of the write-down on Acme’s 2008financial statements and of the recovery on Acme’s 2009 financial statements?3. What would be the eff ect of the recovery on Acme’s 2009 financial statements ifAcme’s inventory were agricultural products instead of computers?
Sheridan Inc. reported total assets of $2395000 and net income of $322000 for the current year. Sheridan determined that inventory was overstated by $23500 at the beginning of the year (this was not corrected). Ignoring income taxes, what is the corrected amount for total assets and net income for the year? $2371500 and $298500. $2395000 and $345500. $2418500 and $345500. $2395000 and $322000.
During 2022, Emerald Inc. decided to change from FIFO method of inventory valuation to the weighted average method. January 1 inventory under FIFO 7,100,000 January 1 inventory under weighted average 7,700,000 December 31 inventory under FIFO 7,900,000 December 31inventory under weighted average 8,300,000 What is the effect on January 1, 2022 inventory and on Retained Earnings? (A) no effect B January 1, 2022 inventory understated and Retained Earnings understated January 1, 2022 inventory understated and Retained Earnings overstated January 1, 2022 inventory overstated and Retained Earnings overstated
The analysis of Inventory Turnover Ratio is as follows: 2015: 4.34 2016: 3.15 2017: 4.76 2018: 2.94 2019: 5.32 a. What is the trend analysis for that Inventory Turnover Ratio and why it is increasing/decreasing?
If the ending inventory is overstated in the current year: Net income will be understated in the current year. Next year's beginning inventory will also be overstated. Next year's net income will be overstated. Next year's beginning inventory will be understated.
A large decrease in end of year grain inventory from one year to the next mistakenly left off of the 2021 accrual income statement will make 2021 net income appear: a. Lower than it really is b. As a true reflection of 2021 financial performance c. Higher than it really is d. None of the above
If financial statements are restated using 2020 price level in accordance with constant peso accounting, how much would be the Gain on purchasing power? Note: Purchasing power loss or gain is an increase or decrease in how much consumers can buy with a given amount of money. Consumers lose purchasing power when prices increase and gain purchasing power when prices decrease.
Question: XYZ Inc. is a large manufacturing company that uses the weighted average method for inventory valuation. During the current financial year, the company experienced a significant increase in its inventory levels due to a surge in production and raw material purchases. At the end of the year, the company's management noticed discrepancies between the physical count and the recorded inventory levels in the books. Which of the following statements regarding the weighted average method for inventory valuation and its impact on financial statements is correct? A) The weighted average method assigns the same cost to each unit of inventory, regardless of when it was purchased, resulting in a smoother cost flow compared to other inventory valuation methods. B) When using the weighted average method, the ending inventory value is based on the most recent purchases made during the year, resulting in a higher cost of goods sold (COGS) and lower gross profit. C) The weighted…
11