
Making a Decision as a Financial Analyst: Analysis of the Effect of a Change to LIFO
A press release for Seneca Foods (licensee of the Libby’s brand of canned fruits and vegetables) included the following information:
The current year's net earnings were $8,019,000 or $0.65 per diluted share, compared with $32,067,000 or $2.63 per diluted share, last year. These results reflect the Company’s decision to implement the LIFO (last-in, first-out)
Required:
As a new financial analyst at a leading Wall Street investment banking firm, you are assigned to write a memo outlining the effects of the accounting change on Seneca’s financial statements. Assume a 35 percent tax rate. In your report, be sure to include the following:
- 1. Why did management adopt LIFO?
- 2. By how much did the change affect pretax earnings and ending inventory? Verify that the amount of the tax savings listed in the press release is correct.
- 3. As an analyst, how would you react to the decrease in income caused by the adoption of LIFO? Consider all of the information in the press release.

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Chapter 7 Solutions
Financial Accounting
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