标题: Reading 21:Inventories: Implications for Financial Statement [打印本页]
作者: 土豆妮 时间: 2011-3-7 14:42 标题: [2011]Session 5-Reading 21: Inventories: Implications for Financial Statement
Session 5: Financial Reporting and Analysis: Inventories and Long-lived Assets
Reading 21: Inventories: Implications for Financial Statements and Ratios
LOS b: Discuss LIFO reserve and LIFO liquidation and their effects on financial statements and ratios.
Brigham Corporation uses the last-in, first-out (LIFO) method of accounting for inventory. For the year 2005, the following is provided:
- Cost of goods sold (COGS): $24,000
- Beginning inventory: $6,000
- Ending inventory: $7,500
- The notes accompanying the financial statements indicate that the LIFO reserve at the beginning of the year was $2,250 and at the end of the year was $6,000
If Brigham had used first-in, first-out (FIFO), the COGS for 2005 would be:
FIFO COGS = LIFO COGS ? change in LIFO reserve. Therefore, $24,000 ? ($6,000 ? 2,250) = $20,250.
作者: 土豆妮 时间: 2011-3-7 14:42
GR Corporation uses the last-in, first out (LIFO) method of accounting for inventory and $70,000 is reported as cost of goods sold (COGS) on their income statement. However, if GR had used first-in, first-out (FIFO), the COGS would have been $60,000. If the ending LIFO reserve (LR) reported in the financial statements is $40,000, the beginning LIFO reserve is:
Beginning LR + ΔLR = Ending LR> >
ΔLR = COGS(LIFO) – COGS(FIFO) = $70,000 – 60,000 = $10,000> >
Beginning LR = $40,000 – 10,000 = $30,000> >
作者: 土豆妮 时间: 2011-3-7 14:43
An analyst gathers the following information about a firm:
- Last in, first out (LIFO) inventory = $10,000
- Beginning LIFO reserve = $2,500
- Ending LIFO reserve = $4,000
- LIFO cost of goods sold = $15,000
- LIFO net income = $1,500
- Tax rate is 40%
To convert the financial statements to a FIFO basis, the amount the analyst should add to the stockholders' equity is closest to:
If the firm had used FIFO inventory cost, tax liability would be higher by (LIFO reserve × tax rate) and retained earnings would be higher by [LIFO reserve × (1 ? tax rate)].
(LIFO reserve)(1 ? t) = $4,000(1 ? 0.4) = $2,400
作者: 土豆妮 时间: 2011-3-7 14:43
The Baker Company uses the last in, first out (LIFO) inventory valuation method and reported its inventory at $200,000 and its cost of goods sold (COGS) at $500,000. The company’s LIFO reserve increased from $5,000 to $30,000 during the year. What amounts would the company report for ending inventory and cost of goods sold if it were to use the first in, first out (FIFO) method?
Ending inventory under FIFO is equal to LIFO ending inventory + LIFO reserve
= 200,000 + 30,000 = 230,000
COGS under FIFO equals LIFO COGS ? (ending LIFO reserve ? beginning LIFO reserve)
= 500,000 ? (30,000 ? 5,000) = 475,000.
作者: 土豆妮 时间: 2011-3-7 14:43
Which of the following is least likely to happen after a last in, first out (LIFO) liquidation in an environment of rising prices?
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A) |
Increase gross income. | |
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B) |
Increase taxable income. | |
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C) |
Increase cost of goods sold (COGS). | |
In a LIFO liquidation, a firm allows inventory to decrease so that it is using lower-cost materials (purchased in the past). This will lower the COGS and increase income and profit. This is one of the ways that a firm’s management can manipulate earnings.
作者: 土豆妮 时间: 2011-3-7 14:43
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:
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A) |
an increase in the LIFO reserve. | |
|
B) |
an understatement of the cost of goods sold (COGS). | |
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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.
作者: 土豆妮 时间: 2011-3-7 14:44
First in, first out (FIFO) inventory equals:
|
A) |
LIFO cost of goods sold ? changes in LIFO reserve. | |
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B) |
the change in LIFO reserve ? LIFO ending reserve. | |
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C) |
LIFO inventory + LIFO reserve. | |
To convert LIFO inventory balances to a FIFO basis, simply add the LIFO reserve to the LIFO inventory:
INVF = INVL + LIFO Reserve
作者: 土豆妮 时间: 2011-3-7 14:44
Given the following data:
- Beginning LIFO Reserve $2,300
- Cost of Goods Sold (COGS) using LIFO $6,100
- COGS using FIFO of $4,300
What is the Ending LIFO reserve?
Ending LIFO Reserve = (LIFO COGS ? FIFO COGS) + Beginning LIFO Reserve = (6,100 ? 4,300) + 2,300 = $4,100.
作者: 土豆妮 时间: 2011-3-7 14:44
The following information has been gathered about a firm:
- LIFO inventory = $10,000
- Beginning LIFO reserve = $2,500
- Ending LIFO reserve = $4,000
- LIFO cost of goods sold = $15,000
- LIFO net income = $1,500
- Tax rate is 40%
What is the FIFO COGS?
FIFO COGS = LIFO COGS – change in LIFO reserve
= $15,000 – (4,000 ? 2,500) = $13,500
作者: 土豆妮 时间: 2011-3-7 14:44
The formula to convert an ending inventory value from the LIFO to the FIFO method is to:
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A) |
FIFO inventory = LIFO inventory + LIFO reserve. | |
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B) |
FIFO inventory = LIFO inventory ? LIFO reserve. | |
|
C) |
FIFO inventory = LIFO inventory × LIFO reserve. | |
The formula to convert an ending inventory value from the LIFO to the FIFO method is to FIFO inventory = LIFO inventory + LIFO reserve.
作者: 土豆妮 时间: 2011-3-7 14:45
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?
LIFO reserve = FIFO inventory ? LIFO inventory = 9,000 ? 6,500 = 2,500
作者: 土豆妮 时间: 2011-3-7 14:45
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:
FIFO COGS is reduced when a LIFO reserve is increased. So, COGS = 80,000 ? (11,000 ? 8,000) = 77,000.
作者: 土豆妮 时间: 2011-3-7 14:45
In a period of rising prices, LIFO liquidation results in:
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A) |
increase in inventory. | |
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|
|
|
Since older layers of inventory that are liquidated were purchased at lower prices, the cost of goods sold will be lower and earnings will be higher.
作者: 土豆妮 时间: 2011-3-7 14:45
In case of a decline in LIFO reserve, to obtain a better analysis an analyst should:
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A) |
not make any adjustments. | |
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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.
作者: 土豆妮 时间: 2011-3-7 14:45
LIFO liquidation may result when:
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A) |
purchases are less than goods sold. | |
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B) |
purchases are more than goods sold. | |
|
C) |
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.
作者: 土豆妮 时间: 2011-3-7 14:46
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?
Ending LIFO reserve = (LIFO COGS ? FIFO COGS) + Beginning LIFO reserve
= ($3,988 ? $2,004) + $2,484
= $4,468
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