Reading 35: Inventories - LOS g ～ Q7-8 black, style, white, provided, following

mayanfang1

Q7. Pischke Motors provided you with the following financials:

• Beginning LIFO reserve $2,484.

• Cost of goods sold (COGS) using LIFO $3,988.

• COGS using FIFO $2,004.

What is the ending LIFO reserve?

A)   $4,468.

B)   $1,984.

C)   $500.

Q8. Under last in first out (LIFO) accounting during periods of inflation, when a firm sells a greater quantity of its inventory than it produces or acquires, the result is:

A)   an understatement of the cost of goods sold (COGS).

B)   an increase in the LIFO reserve.

C)   lower earnings.

mayanfang1

答案和详解如下：

Q7. Pischke Motors provided you with the following financials:

• Beginning LIFO reserve $2,484.

• Cost of goods sold (COGS) using LIFO $3,988.

• COGS using FIFO $2,004.

What is the ending LIFO reserve?

A)   $4,468.

B)   $1,984.

C)   $500.

Correct answer is A)

Ending LIFO reserve = (LIFO COGS − FIFO COGS) + Beginning LIFO reserve
= ($3,988 − $2,004) + $2,484
= $4,468

Q8. Under last in first out (LIFO) accounting during periods of inflation, when a firm sells a greater quantity of its inventory than it produces or acquires, the result is:

A)   an understatement of the cost of goods sold (COGS).

B)   an increase in the LIFO reserve.

C)   lower earnings.

Correct answer is A)

This is a LIFO liquidation which refers to a declining inventory balance (the units available for sale are declining). In this case the prices for goods that are being sold are no longer recent prices and can be many years out of date.  This would make COGS appear to be very low and gross and net profits to be artificially high.

 

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