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答案和详解如下：

Q21. Costiuk Ltd. uses the LIFO inventory cost flow assumption. Its inventory balance is $400 at the end of 20X8 and was $350 at the end of 20X7. A footnote in its financial statements reads: “Inventories would have been $70 higher in 20X8 and $80 higher in 20X7 using the FIFO cost flow assumption.”

Which of the following amounts represents the inventory balance under FIFO at the end of 20X8?

A)   $470.

B)   $410.

C)   $390.

Correct answer is A)

The $70 and $80 amounts represent the LIFO reserves which are differences between LIFO inventory and its value under FIFO.

FIFO inventory (20X8) = LIFO inventory (20X8) + LIFO reserve (20X8)

$400 + $70 = $470

Q22. Moore Ltd. uses the LIFO inventory cost flow assumption. Its cost of goods sold in 20X8 was $800. A footnote in its financial statements reads: “Using FIFO, inventories would have been $70 higher in 20X8 and $80 higher in 20X7.” Moore’s COGS if FIFO inventory costing were used in 20X8 is closest to:

A)   $790.

B)   $810.

C)   $730.

Correct answer is B)         

The ending LIFO reserve is $70 and the beginning LIFO reserve is $80.

FIFO COGS = LIFO COGS − (ending LIFO reserve − beginning LIFO reserve)

$800 − ($70 − $80) = $810

Q23. Due to declining prices, Steffen Inc. has a LIFO reserve of –$20. Its income tax rate is 35%. If an analyst is converting Steffen’s financial statements to a FIFO basis, which of the following adjustments is most likely required?

A)   Decrease liabilities by $7.

B)   Increase assets by $20.

C)   Increase shareholders’ equity by $13.

Correct answer is A)

Declining prices (negative LIFO reserve) would result in FIFO inventory being less than LIFO inventory based on the following equation:

FIFO inventory = LIFO inventory + LIFO reserve

The balance sheet adjustment would decrease assets (inventory) by the $20 LIFO reserve. In addition, the analyst would decrease liabilities by $7 ($20 LIFO reserve × 35% tax rate). To bring the accounting equation into balance, the analyst would decrease shareholders’ equity by $13 [$20 LIFO reserve × (1 − 35% tax rate)].