
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.

Want to see the full answer?
Check out a sample textbook solution
Chapter 7 Solutions
Financial Accounting
- I am looking for help with this general accounting question using proper accounting standards.arrow_forward1. Which financial statement shows a company’s financial position at a specific point in time?A. Income StatementB. Statement of Cash FlowsC. Balance SheetD. Retained Earnings Statementarrow_forwardI need help finding the accurate solution to this financial accounting problem with valid methods.arrow_forward
- 4. Depreciation is recorded to:A. Match cash flowsB. Reflect a decline in market valueC. Allocate cost of an asset over its useful lifeD. Increase net incomeno AIarrow_forward4. Depreciation is recorded to:A. Match cash flowsB. Reflect a decline in market valueC. Allocate cost of an asset over its useful lifeD. Increase net incomeneed helparrow_forward4. Depreciation is recorded to:A. Match cash flowsB. Reflect a decline in market valueC. Allocate cost of an asset over its useful lifeD. Increase net incomearrow_forward
- Which of the following is a contra asset account?A. Accounts PayableB. Accumulated DepreciationC. InventoryD. Notes Receivable no Aiarrow_forwardPlease provide the correct answer to this financial accounting problem using accurate calculations.arrow_forward6. Which of the following is a contra asset account?A. Accounts PayableB. Accumulated DepreciationC. InventoryD. Notes Receivableneed helparrow_forward
- 6. Which of the following is a contra asset account?A. Accounts PayableB. Accumulated DepreciationC. InventoryD. Notes Receivablearrow_forwardWhich principle requires companies to record revenue when it is earned and realizable?A. Matching PrincipleB. Revenue Recognition PrincipleC. Conservatism PrincipleD. Cost Principle need helparrow_forwardPlease provide the correct answer to this financial accounting problem using accurate calculations.arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningFinancial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning

