College Accounting, Chapters 1-27
23rd Edition
ISBN: 9781337794756
Author: HEINTZ, James A.
Publisher: Cengage Learning,
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Chapter 13, Problem 1CP
Bhushan Company has been using LIFO for inventory purposes because it would prefer to keep gross profits low for tax purposes. In its second year of operation (20-2), the controller pointed out that this strategy did not appear to work and suggested that FIFO cost of goods sold would have been higher than LIFO cost of goods sold for 20-2. Is this possible?
REQUIRED
Using the information provided, compute the cost of goods sold for 20-1 and 20-2 comparing the LIFO and FIFO methods.
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Students have asked these similar questions
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.
If the ending inventory of a firm is overstated by $56,000, by how much and in what direction (overstated or understated) will the firm's
operating income be misstated? (Hint: Use the cost of goods sold model, enter hypothetically "correct" data, and then reflect the
effects of the ending inventory error and determine the effect on cost of goods sold.)
Operating income
by
The net realizable value of Lake Corporation’s inventory has declined below its cost. Allyn Conan, the controller, wants to use the loss method to write down inventory because it more clearly discloses the decline in the net realizable value and does not distort the cost of goods sold. His supervisor, financial vice president Bill Ortiz, prefers the costof-goods-sold method to write down inventory because it does not call attention to the decline in net realizable value.InstructionsAnswer the following questions.(a) What, if any, is the ethical issue involved?(b) Is any stakeholder harmed if Bill Ortiz’s preference is used?(c) What should Allyn Conan do?
Chapter 13 Solutions
College Accounting, Chapters 1-27
Ch. 13 - An overstatement of ending inventory in the year...Ch. 13 - An understatement of ending inventory in the year...Ch. 13 - LO2 Under the perpetual system of accounting for...Ch. 13 - LO3 A fiscal year that starts and ends at the time...Ch. 13 - LO3 If goods are shipped FOB shipping point, the...Ch. 13 - An understatement of ending inventory in the year...Ch. 13 - Prob. 2MCCh. 13 - In rimes of rising prices, the inventory cost...Ch. 13 - In rimes of rising prices, the inventory cost...Ch. 13 - In the application of lower-of-cost-or-market,...
Ch. 13 - LO1 If the ending inventory is overstated by...Ch. 13 - Using the following information, compute the...Ch. 13 - Use the following information to compute cost of...Ch. 13 - Kulsrud Company would like to estimate the current...Ch. 13 - What financial statements are affected by an error...Ch. 13 - What is the main difference between the periodic...Ch. 13 - Is a physical inventory necessary under the...Ch. 13 - Is a physical inventory necessary under the...Ch. 13 - In a period of rising prices, which inventory...Ch. 13 - What two factors are taken into account by the...Ch. 13 - Which inventory method always follows the actual...Ch. 13 - When lower-of-cost-or-market is assigned to the...Ch. 13 - List the three steps followed under the gross...Ch. 13 - List the five steps followed under the retail...Ch. 13 - INVENTORY ERRORS Assume that in year 1, the ending...Ch. 13 - JOURNAL ENTRIESPERIODIC INVENTORY Paul Nasipak...Ch. 13 - JOURNAL ENTRIESPERPETUAL INVENTORY Joan Ziemba...Ch. 13 - ENDING INVENTORY COSTS Sandy Chen owns a small...Ch. 13 - LOWER-OF-COST-OR-MARKET Stalberg Companys...Ch. 13 - SPECIFIC IDENTIFICATION, FIFO, LIFO, AND...Ch. 13 - COST ALLOCATION AND LOWER-OF-COST-OR-MARKET...Ch. 13 - Prob. 8SPACh. 13 - RETAIL INVENTORY METHOD The following information...Ch. 13 - INVENTORY ERRORS Assume that in year 1, the ending...Ch. 13 - JOURNAL ENTRIESPERIODIC INVENTORY Amy Douglas owns...Ch. 13 - JOURNAL ENTRIESPERPETUAL INVENTORY Doreen Woods...Ch. 13 - ENDING INVENTORY COSTS Danny Steele owns a small...Ch. 13 - LOWER-OF-COST-OR-MARKET Bouie Companys beginning...Ch. 13 - SPECIFIC IDENTIFICATION, FIFO, LIFO, AND...Ch. 13 - COST ALLOCATION AND LOWER-OF-COST-OR-MARKET Hall...Ch. 13 - GROSS PROFIT METHOD A flood completely destroyed...Ch. 13 - RETAIL INVENTORY METHOD The following information...Ch. 13 - Hurst Companys beginning inventory and purchases...Ch. 13 - Bhushan Company has been using LIFO for inventory...
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Company Elmira reported the following cost of goods sold but later realized that an error had been made in ending inventory for year 2021. The correct inventory amount for 2021 was 32,000. Once the error is corrected, (a) how much is the restated cost of goods sold for 2021? and (b) how much is the restated cost of goods sold for 2022?arrow_forwardThe management of Milque Corp. is considering the effects of inventory-costing methods on its financial statements and its income tax expense. Assuming that the cost the company pays for inventory is increasing, which method will: (a) (b) (c) Provide the highest net income? Provide the highest ending inventory? Result in the lowest income tax expense? 10arrow_forwardSuppose Ajax Corporation overstates its ending inventory amount. What effect will this have on the reported amount of cost of goods sold in the year of the error? a. Overstate cost of goods sold.b. Understate cost of goods sold.c. Have no effect on cost of goods sold.d. Not possible to determine with information given.arrow_forward
- True False 1. During a period of rising costs, the LIFO cost flow assumption results in lower cost of goods sold as compared to FIFO. 2. For companies using LIFO for tax purposes, the inventory method for financial statement purposes can be either FIFO or LIFO. 3. Under the LIFO method, the cost of goods sold balance would be the same whether a perpetual or periodic inventory system is used. 4. For companies using LIFO, inventory should be reported at the lower of cost or market and it may be based on the values of individual items, categories, or the total inventory. 5. In nonmonetary exchanges, losses are only recognized when cash is received in the transactions. 6. Gains are never recognized when similar assets are exchanged. 7. Expenditures to improve the efficiency or extend the useful life of an asset should be capitalized. 8. An intangible asset that is…arrow_forwardSwing Ltd uses FIFO for its inventory, which is valued at $21,000. It is considering a change to moving weighted average, which would change the valuation of inventory to $22,500. Which of the following would be decreased by the change? Cost of goods sold b. Sales c. Liabilities d. Withdrawalsarrow_forwardSwing Ltd uses FIFO for its inventory, which is valued at $21,000. It is considering a change to moving weighted average, which would change the valuation of inventory to $22,500. Which of the following would be decreased by the change? a.Cost of goods sold b.Sales c.Liabilities d.Withdrawalsarrow_forward
- Hunter, Inc. uses the LIFO method of inventory costing and is facing the possibility of a LIFO liquidation for the current year. Merchandise purchase prices have increased since the LIFO method was adopted. If the company does not purchase additional merchandise before year-end, which one of the following effects will occur as a result of a LIFO liquidation? Question 24 options: Reported earnings for the current year will be higher. Income taxes for the current year will be lower. Cost of goods sold for the current year will be higher. Gross margin for the current year will be lower.arrow_forwardWalmart does not issue its first-quarter report until after the second-quarter results are reported. (Do not use relevance.) Answer Walmart has attempted to determine the replacement cost of its inventory. Three different valuators have produced significantly different amounts for the inventory value. The CFO decided to report the middle value for external reporting purposes. Answerarrow_forwardThe net realizable value of Lake Corporation’s inventory has declined below its cost.Allyn Conan, the controller, wants to use the loss method to write down inventory because itmore clearly discloses the decline in the net realizable value and does not distort the cost ofgoods sold. His supervisor, financial vice president Bill Ortiz, prefers the cost-of-goods-soldmethod to write down inventory because it does not call attention to the decline in net realizablevalue.Instructions Answer the following questions:(a) What, if any, is the ethical issue involved?(b) Is any stakeholder harmed if Bill Ortiz’s preference is used?(c) What should Allyn Conan do?arrow_forward
- aarrow_forwardThe management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? Select the inventory-costing method that will provide the highest net income (b) provide the highest ending inventory? Select the inventory-costing method that will provide the highest ending inventory (c) result in the lowest income tax expense? Select the inventory-costing method that will result in the lowest income tax expense (d) result in the most stable earnings over a number of years? Select the inventory-costing method that will result in the most stable earnings over a number of yearsarrow_forwardPlease refer to the picture below for the information. Please show the complete solution and kinldy include label. Thank you so much. Question 1: How much is the amount of "Cost of Goods Sold" to be reported in the 2015 Statement of comprehensive income assuming the company’s policy is to charge loss on inventory write-down to COST OF GOODS SOLD and charge loss on inventory write-down to OTHER EXPENSE, respectively. Question 2: How much is the amount of "Cost of Goods Sold" to be reported in the 2016 Statement of comprehensive income?arrow_forward
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