honeycfa

The formula to convert an ending inventory value from the LIFO to the FIFO method is to:

A) FIFO inventory = LIFO inventory + LIFO reserve.

B) FIFO inventory = LIFO inventory ? LIFO reserve.

C) FIFO inventory = LIFO inventory × LIFO reserve.

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The formula to convert an ending inventory value from the LIFO to the FIFO method is to FIFO inventory = LIFO inventory + LIFO reserve.

honeycfa

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

COGS

A) $230,000 $525,000

B) $170,000 $525,000

C) $230,000 $475,000

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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.

honeycfa

Given the following inventory information about the Buckner Company:

• Year-end last in, first out (LIFO) inventory of $6,500.
• Year-end LIFO reserve of $2,500.
• The current year's LIFO cost of goods sold (COGS) is $15,000.
• After tax income is $1,600.
• The previous year's LIFO reserve was $2,000.

How much higher would the firm's retained earnings be on a first in, first out (FIFO) basis if the firm's tax rate is 40%?

A) $2,100.

B) $1,800.

C) $1,500.

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Adjustment to retained earnings = LIFO reserve (1 ? t) = $2,500(1 ? 0.4) = $1,500

honeycfa

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?

A) $500.

B) $4,100.

C) $2,800.

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Ending LIFO Reserve = (LIFO COGS ? FIFO COGS) + Beginning LIFO Reserve = (6,100 ? 4,300) + 2,300 = $4,100.

honeycfa

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?

A) $16,500.

B) $13,500.

C) $11,000.

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FIFO COGS = LIFO COGS – change in LIFO reserve

= $15,000 – (4,000 ? 2,500) = $13,500

honeycfa

First in, first out (FIFO) inventory equals:

A) LIFO inventory + LIFO reserve.

B) LIFO cost of goods sold ? changes in LIFO reserve.

C) the change in LIFO reserve ? LIFO ending reserve.

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To convert LIFO inventory balances to a FIFO basis, simply add the LIFO reserve to the LIFO inventory:

INV_F = INV_L + LIFO Reserve

honeycfa

If a company using last in, first out (LIFO) reports an inventory balance of $22,000 and a LIFO reserve of $4,000, the estimated value for the inventory on a first in, first out (FIFO) basis would be:

A) $26,000.

B) $13,000.

C) $18,000.

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FIFO INV = LIFO INV + LIFO Reserve
X = 22,000 + 4,000
X = 26,000

honeycfa

The formula to convert cost of goods sold (COGS) from last in, first out (LIFO) to first in, first out (FIFO) is:

A) COGS FIFO = COGS LIFO – change in the LIFO reserve.

B) COGS FIFO = COGS LIFO + change in the LIFO reserve.

C) COGS FIFO = COGS LIFO + beginning LIFO reserve.

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The formula for converting COGS from LIFO to FIFO is COGS_F = COGS_L ? (LIFO reserve_E ? LIFO reserve_B)

honeycfa

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:

A) $30,000.

B) $50,000.

C) $20,000.

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Beginning LR + ΔLR = Ending LR> >

ΔLR = COGS(LIFO) – COGS(FIFO) = $70,000 – 60,000 = $10,000> >

Beginning LR = $40,000 – 10,000 = $30,000> >

honeycfa

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:

A) $2,800.

B) $2,400.

C) $4,000.

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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