If a firm has a first in, first out (FIFO) inventory of 9,000 and a last in, first out (LIFO) inventory of 6,500, what is the value of the LIFO reserve assuming a 40% tax rate?
M J Inc reported COGS of $80,000 for the year under the LIFO inventory valuation method. M J had a beginning LIFO reserve of $8,000 and an ending LIFO reserve of $11,000. The COGS under the FIFO inventory valuation method is:
A)
$77,000.
B)
$83,000.
C)
$91,000.
FIFO COGS is reduced when a LIFO reserve is increased. So, COGS = 80,000 ? (11,000 ? 8,000) = 77,000.
In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:
A)
not make any adjustments.
B)
adjust the income statement, regardless of the reasons for the decline.
C)
adjust the income statement, only if such a decline is due to LIFO liquidation.
A decline in LIFO reserve is due to either falling prices or LIFO liquidations. In the case of LIFO liquidation, the income statement does not reflect the current costs and should be adjusted. In the case of falling prices, the LIFO income statement amounts are current and do not need adjustment.
cost of goods sold is less than the available inventory.
For LIFO companies, when more goods are sold than are purchased during a period, the goods held in opening inventory are in included in COGS. This will result in LIFO liquidation.
发表于 2011-3-7 14:45
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