Financial Accounting, 8th Edition
8th Edition
ISBN: 9780078025556
Author: Robert Libby, Patricia Libby, Daniel Short
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Concept explainers
Videos
Textbook Question
Chapter 7, Problem 20E
(Chapter Supplement A) Analyzing the Effects of a Reduction in the Amount of LIFO Inventory
In its annual report, ConocoPhillips reported that the company decreased its inventory levels during 2011. ConocoPhillips's 2011 financial statements contain the following note:
In 2011, a liquidation of LIFO inventory values increased net income attributable to ConocoPhillips $160 million, of which $155 million was attributable to the R&M segment.
Required:
- 1. Explain why the reduction in inventory quantity increased net income for ConocoPhillips.
- 2. If ConocoPhillips had used FIFO, would the reductions in inventory quantity during the two years have increased net income? Explain.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Rios Inc, uses International Financial Reporting Standards (IFRS). In 2018, Rios Inc. experienced a decline in the value of its inventory resulting in a write-down of its inventory from €240,000 to €200,000. The company used the loss method in 2018 to record the necessary adjustment and uses an allowance account to reduce inventory to NRV. In 2019, market conditions have improved dramatically and Rios, Inc.’s inventory increases to an NRV of €216,000. Which of the following will Rios, Increcord in 2019?
Bistro Company incurred a permanent inventory loss of $80,000 in April 2010 after the March 31, 2010 quarterly financial statements were issued. What amount of this loss should be reflected in the quarterly income statement for the three months ended June 30, 2010?
Question 20 options:
a)
$0
b)
$20,000
c)
$26,667
d)
$80,000
BALANAR CORP. reports on a calendar-year basis. The financial statements contained
the following errors:
2013
2014
Over (under) statement of ending inventory
(100,000)
40,000
Depreciation understatement
40,000
60,000
Failure to accrue salaries at year-end
80,000
120,000
As a result of the errors, what was the effect on net income for 2014?
А.
240,000 overstated
C.
320,000 overstated
В.
240,000 understated
D.
320,000 understated
Chapter 7 Solutions
Financial Accounting, 8th Edition
Ch. 7 - Why is inventory an important item to both...Ch. 7 - Prob. 2QCh. 7 - Prob. 3QCh. 7 - Prob. 4QCh. 7 - Prob. 5QCh. 7 - The chapter discussed tour inventory costing...Ch. 7 - Prob. 7QCh. 7 - Contrast the effects of LIFO versus FIFO on...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Prob. 10Q
Ch. 7 - Explain briefly the application of the LCM concept...Ch. 7 - Prob. 12QCh. 7 - Consider the following information: ending...Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a component of the...Ch. 7 - Consider the following information: beginning...Ch. 7 - Consider the following information: beginning...Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - If the ending balance in accounts payable...Ch. 7 - Prob. 8MCQCh. 7 - Which inventory method provides a better matching...Ch. 7 - Which of the following is false regarding a...Ch. 7 - Prob. 1MECh. 7 - Recording the Cost of Purchases for a Merchandiser...Ch. 7 - Identifying the Cost of Inventories for a...Ch. 7 - Inferring Purchases Using the Cost of Goods Sold...Ch. 7 - Prob. 5MECh. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Reporting Inventory under Lower of Cost or Market...Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Prob. 9MECh. 7 - Prob. 1ECh. 7 - Inferring Missing Amounts Based on Income...Ch. 7 - Prob. 3ECh. 7 - Inferring Merchandise Purchases Abercrombie and...Ch. 7 - Prob. 5ECh. 7 - Prob. 6ECh. 7 - Prob. 7ECh. 7 - Prob. 8ECh. 7 - Prob. 9ECh. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Prob. 11ECh. 7 - Prob. 12ECh. 7 - Prob. 13ECh. 7 - Prob. 14ECh. 7 - Prob. 15ECh. 7 - Prob. 16ECh. 7 - Prob. 17ECh. 7 - Prob. 18ECh. 7 - Prob. 19ECh. 7 - (Chapter Supplement A) Analyzing the Effects of a...Ch. 7 - (Chapter Supplement B) FIFO and LIFO Cost of Goods...Ch. 7 - Prob. 22ECh. 7 - Prob. 1PCh. 7 - Prob. 2PCh. 7 - Prob. 3PCh. 7 - Prob. 4PCh. 7 - Evaluating the LIFO and FIFO Choice When Costs Are...Ch. 7 - Prob. 6PCh. 7 - Evaluating the Effects of Manufacturing Changes on...Ch. 7 - Evaluating the Choice between LIFO and FIFO Based...Ch. 7 - Prob. 9PCh. 7 - (Chapter Supplement A) Analyzing LIFO and FIFO...Ch. 7 - Prob. 1APCh. 7 - Prob. 2APCh. 7 - Evaluating the UFO and FIFO Choice When Costs Are...Ch. 7 - Prob. 4APCh. 7 - Prob. 1CPCh. 7 - Prob. 2CPCh. 7 - Prob. 3CPCh. 7 - Prob. 4CPCh. 7 - Using Financial Reports: Interpreting Effects of...Ch. 7 - Making a Decision as a Financial Analyst: Analysis...Ch. 7 - Evaluating an Ethical Dilemma: Earnings, Inventory...Ch. 7 - Prob. 1CC
Knowledge Booster
Learn more about
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
- After years of steady growth in net income, Performance Drug Company reported a preliminary net loss in 2021. The CEO, Joe Mammoth, notices the following estimates are included in reported performance:1. Warranty expense and liability for estimated future warranty costs associated with sales in the current year.2. Loss due to ending inventory’s net realizable value (estimated selling price) falling below its cost. This type of inventory write down occurs most years.3. Depreciation of major equipment purchased this year, which is estimated to have a 10-year service life.Joe is worried that the company’s poor performance will have a negative impact on the company’s risk and profitability ratios. This will cause the stock price to decline and hurt the company’s ability to obtain needed loans in the following year. Before releasing the financial statements to the public, Joe asks his CEO to reconsider these estimates. He argues that (1) warranty work won’t happen until next year, so that…arrow_forwardThe income statement of TINKER CORP. shows a net income of P175,000 for the year ended December 31, 2014. Adjustments were made for the following errors: 1 December 31, 2013, inventory overstated by P22,500. 2 December 31, 2014, inventory understated by P37,500. 3 A P10,000 customer's deposit received in December 2014, was credited to sales in 2014. The goods were actually shipped in January 2015. What is the unadjusted net income of Uruguay Co. for the year ended December 31, 2014? А. P234,000 C. P170,000 P125,000 D. P200,000 B.arrow_forward(Single-Step Income Statement) The financial records of LeRoi Jones Inc. were destroyed by fire at the end of 2017. Fortunately, the controller had kept certain statistical data related to the income statement as follows. 1. The beginning merchandise inventory was $92,000 and decreased 20% during the current year.2. Sales discounts amount to $17,000.3. 20,000 shares of common stock were outstanding for the entire year.4. Interest expense was $20,000.5. The income tax rate is 30%.6. Cost of goods sold amounts to $500,000.7. Administrative expenses are 20% of cost of goods sold but only 8% of gross sales.8. Four-fifths of the operating expenses relate to sales activities. InstructionsFrom the foregoing information prepare an income statement for the year 2017 in single-step formarrow_forward
- Adams Corporation estimates that it lost $75,000 in inventory from a recent flood. The following information is available from the records of the company’s periodic inventory system: beginning inventory, $150,000; purchases and net sales from the beginning of the year through the date of the flood, $450,000 and $700,000, respectively. What is the company’s gross profit ratio? Gross profit ratio Choose Numerator: Choose Denominator: Gross profit ratio / = Gross profit ratio / =arrow_forwardAn annual report for International Paper Company included the following note: The last-in, first-out inventory method is used to value most of International Paper’s U.S. inventories . . . If the first-in, first-out method had been used, it would have increased total inventory balances by approximately $293 million and $290 million at December 31, 2017, and 2016, respectively. For the year 2017, International Paper Company reported net income (after taxes) of $2,144 million. At December 31, 2017, the balance of International Paper Company’s retained earnings account was $6,180 million.arrow_forwardBarry Corp. reported 2016 net income of $40,000. However, the ending inventory in 2015 had been understated by $3,000, and 2016's ending inventory had been overstated by $6,000. Barry's correct net income for 2016 wasarrow_forward
- Adams Corporation estimates that it lost $187,200 in inventory from a recent flood. The following information is available from the records of the company's periodic inventory system: beginning inventory, $330,000; purchases and net sales from the beginning of the year through the date of the flood, $570,000 and $880,000, respectively. a. What is the company's gross profit ratio? b. What is the gross profit ratio?arrow_forwardMarshall Tool and Die Company has been experiencing significant foreign competition and a declining market. Annual net losses from operations have averaged $250,000 over the last three years. The company’s balance sheet as of December 31, 2015, is as attached:After analyzing accounts receivable and inventory, it has been determined that the allowance for uncollectibles should be increased by $75,000 and the inventory should be written down by $20,000. Based on recent appraisals, it is estimated that the plant and equipment have a market value of $1,285,000. The goodwill is traceable to the purchase of a small tooling company in 2011. Based on an analysis of cash flows associated with that acquisition, it is estimated that the goodwill has an impaired value of $0. Other assets represent a note receivable from officers of the corporation. The note calls for five annual payments of $8,309 including interest at the rate of 6%.In response to the current situation, the company has decided to…arrow_forward(Accounting Change) Presented below are income statements prepared on a LIFO and FIFO basis for Kenseth Company, which started operations on January 1, 2016. The company presently uses the LIFO method of pricing its inventory and has decided to switch to the FIFO method in 2017. The FIFO income statement is computed in accordance with the requirements of GAAP. Kenseth’s profit-sharing agreement with its employees indicates that the company will pay employees 10% of income before profit-sharing. Income taxes are ignored. Check the below image for information. InstructionsAnswer the following questions.(a) If comparative income statements are prepared, what net income should Kenseth report in 2016 and 2017?(b) Explain why, under the FIFO basis, Kenseth reports $100 in 2016 and $96 in 2017 for its profit-sharing expense.(c) Assume that Kenseth has a beginning balance of retained earnings at January 1, 2017, of $900 using the LIFO method.The company declared and paid dividends of $500 in…arrow_forward
- During its second and third quarters of fiscal 2014, BlackBerry Limited wrote down its BB10smartphone inventory by approximately $1,700,000,000 because its cost exceeded its marketvalue. Show the effects of this adjustment on the accounting equation and show the journal entrythat the company would have made to record it.arrow_forwardMarigold Inc. reported total assets of $2391000 and net income of $318000 for the current year. Marigold 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?arrow_forward1. Lams Company's accounting records indicated the following information: Inventory, January 1 P1,000,000; Purchases 5,000,000; Sales 6,400,000.A physical inventory taken on December 31, 2020, revealed actual ending inventory at cost was P1,150,000. Lams' gross profit on sales has regularly been about 25 percent in recent years. The company believes some inventory may have been stolen during the year. What is the estimated amount of missing inventory at December 31, 2020? a. P350,000 b. P200,000 c. P450,000 d. P50,000 2. The following information is available for Tyron Corp. for its most recent year: Net Sales P3,600,000; Freight-in P90,000; Ending Inventory P240,000. The gross margin is 40 percent of net sales. What is the cost of goods available for sale? a. P2,400,000 b. P2,440,000 c. P1,680,000 d. P1,920,000 3. On October 1, Dennis Company purchased P200,000 face value 12% bonds for 98 plus accrued interest and brokerage fees and…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College
Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage Learning
Cornerstones of Financial Accounting
Accounting
ISBN:9781337690881
Author:Jay Rich, Jeff Jones
Publisher:Cengage Learning
Intermediate Accounting: Reporting And Analysis
Accounting
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Principles of Accounting Volume 1
Accounting
ISBN:9781947172685
Author:OpenStax
Publisher:OpenStax College
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License