Individual Income Taxes
43rd Edition
ISBN: 9780357109731
Author: Hoffman
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 18, Problem 24DQ
To determine
Explain, the reason of the exacerbation of the company’s error when LIFO is replaced with FIFO system of
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Amber Auto Parts adopted the dollar-value LIFO inventory method. The company has consistently used a retail price index when it should have used a producer’s index. As a result, its LIFO layers have been consistently undervalued. Why is the company’s error exacerbated by the fact that the company uses the LIFO method instead of the FIFO method?
Zimt AG uses the FIFO method, and Nutmeg Inc. uses the LIFO method. Compared tothe cost of replacing the inventory, during periods of rising prices the ending inventorybalance reported by:A. Zimt is too high.B. Nutmeg is too low.C. Nutmeg is too high.
What is inventory shrinkage?
The difference between product cost and retail selling price.
The loss of sales revenue due to lowering sales prices.
The discrepancy between the perpetual system generated Inventory level and actual physical inventory on hand.
The inaccuracy of vendor invoices regarding what was physically shipped.
What would be the most favorable cost flow assumption method when calculating gross margin in a time of high inflation?
FIFO
Specific
LIFO
Average
Chapter 18 Solutions
Individual Income Taxes
Ch. 18 - Prob. 1DQCh. 18 - Prob. 2DQCh. 18 - Prob. 3DQCh. 18 - Prob. 4DQCh. 18 - Prob. 5DQCh. 18 - Prob. 6DQCh. 18 - Prob. 7DQCh. 18 - LO.2 In 2019, the taxpayer became ineligible to...Ch. 18 - LO.2 Osprey Corporation, an accrual basis...Ch. 18 - Prob. 10DQ
Ch. 18 - Prob. 11DQCh. 18 - Prob. 12DQCh. 18 - LO.2 Emerald Motors is an automobile dealer. The...Ch. 18 - Prob. 14DQCh. 18 - Prob. 15DQCh. 18 - Prob. 16DQCh. 18 - Prob. 17DQCh. 18 - LO.4, 7 In December 2019, Carl Corporation sold...Ch. 18 - LO.2, 5 What are the similarities between the crop...Ch. 18 - Prob. 20DQCh. 18 - Prob. 21DQCh. 18 - Prob. 22DQCh. 18 - LO.6 Largo Company is an engineering consulting...Ch. 18 - Prob. 24DQCh. 18 - Prob. 25DQCh. 18 - Prob. 26DQCh. 18 - Prob. 27CECh. 18 - LO.2 Gaffney Corporation is a wholesale...Ch. 18 - Prob. 29CECh. 18 - LO.2 In 2019, Chaya Corporation, an accrual basis,...Ch. 18 - Prob. 31CECh. 18 - Prob. 32CECh. 18 - Prob. 33CECh. 18 - Prob. 34CECh. 18 - Prob. 35CECh. 18 - Prob. 36CECh. 18 - Prob. 37CECh. 18 - Prob. 38CECh. 18 - Prob. 39PCh. 18 - Prob. 40PCh. 18 - Prob. 41PCh. 18 - In 2018, Juan entered into a contract to write a...Ch. 18 - Prob. 43PCh. 18 - Compute Marys income or deductions for 2019 using...Ch. 18 - What accounting method (cash or accrual) would you...Ch. 18 - Blue Company, an architectural firm, has a...Ch. 18 - How do the all events and economic performance...Ch. 18 - Ross Company is a C corporation providing property...Ch. 18 - Prob. 49PCh. 18 - Prob. 50PCh. 18 - Floyd, a cash basis taxpayer, has received an...Ch. 18 - Prob. 52PCh. 18 - Prob. 53PCh. 18 - On June 30, 2019, Kelly sold property for 240,000...Ch. 18 - Prob. 55PCh. 18 - Prob. 56PCh. 18 - Prob. 57PCh. 18 - Prob. 58PCh. 18 - Prob. 59PCh. 18 - Ostrich Company makes gasoline storage tanks....Ch. 18 - Prob. 61PCh. 18 - Grouse Company is a furniture retailer whose...Ch. 18 - Lavender Manufacturing Company began business in...Ch. 18 - Silver Creek Ranch LLC is a small, family-owned...Ch. 18 - In 2019, Gail changed from the lower of cost or...Ch. 18 - At the end of 2020, Magenta Manufacturing Company...Ch. 18 - Prob. 67PCh. 18 - Prob. 68PCh. 18 - Prob. 69PCh. 18 - Prob. 1RPCh. 18 - Prob. 2RPCh. 18 - Prob. 3RPCh. 18 - Paula has sales that qualify to be reported on the...
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- Ward Hardware does not expect costs to change dramatically and wants to use an inventory costing method that averages cost changes. Requirements 1. Which inventory costing method would best meet Ward's goal? 2. Assume Ward wanted to expense out the newer purchases of goods instead. Which inventory costing method would best meet that need? Requirement 1. The inventory costing method that averages cost changes is the: O A. Last-in, first-out (LIFO) cost method O B. Weighted-average method OC. First-in, first-out (FIFO) cost method O D. Specific identification method Requirement 2. The inventory costing method that expenses out the newer purchases of goods is the: O A. Last-in, first-out (LIFO) cost method B. Weighted-average method Oc. Specific identification method O D. First-in, first-out (FIFO) cost methodarrow_forwardTrue 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_forwardA firm that uses LIFO accounting for inventory in times of rising investory costs will always report lower profit margins than if it used FIFO. Is this correct?arrow_forward
- 3.What is the purpose of the current ratio? Assume that Island Solutions want to compute its current ratio, which inventory method (FIFO or Average Cost) would give a more meaningful current ratio. Explain. 4.Island Solutions has discovered that all of its competitors are using another inventory method and is worried. Can the company change its inventory accounting method, on what grounds? Discuss two (2) trade-offs for the company.arrow_forwardIdentify the correct statement from the following if, cóst of inventory is greater than its net releasable value? The firm will not incur losses due to this situation. There is higher demand for the inventory in the market. Inventory value in the balance sheet shall decrease. Inventory value in the balance sheet shall increase. Penner LLC imported a packing machine from London. Penner LLC incurred the following costs: Chapter 5 - IAS 16..pdf A Chapter 4 - IAS 2 i.pdf ENarrow_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 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?arrow_forward
- vj subject-Accountingarrow_forwardCan you explain why the answer is B and not C. If inventory prices are decreasing wouldnt LIFO result in a lower COGS and which would lead to a higher Net income thus higher income tax expense?arrow_forwardAssuming rising inventory prices, which statement is correct? Group of answer choices A. FIFO reports a lower value for cost of sales than other methods B. FIFO reports a lower value for closing inventory than other methods C. Using FIFO, it is not possible to calculate whether cost of sales/inventory is lower or higher than it would be if other assumptions about inventory valuation were made D. FIFO reports a lower profit than other methodsarrow_forward
- 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 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_forwardIf the ending inventory of a firm is overstated by $49,000, 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 ?arrow_forwardWhich of the following statements is not incorrect? I. PAS 2 requires the use of the Allowance Method in accounting for inventory write-down. II. There shall always be an allowance for inventory write-down if the net realizable value of inventories is lower than its cost. III. Regardless of what method the company uses in accounting for inventory write-down, the cost of goods sold must always be the same IV. A company may recognize a gain on reversal of inventory write-down even if the cost of inventory exceeds its net realizable value. a. I and II b. None of these c. II and III d. III and IV e. I and IVarrow_forward
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