The Orchard Supply Company uses LIFO inventory valuation. Orchard Supply had a cost of goods sold of $1 million for the period. The inventory at the beginning of the period was $0.5 million, and the inventory at the end of the period was $0.6 million. Orchard Supply's LIFO reserve was $0.1 million for the previous year and $0.2 million for the current year. What is Orchard Supply's ending inventory according to FIFO inventory valuation?
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FIFO Inventory = $0.6 + 0.2 = $0.8 million.
Wallace Lumber uses LIFO and had the following note in its last financial statement: "Wallace Lumber showed a LIFO reserve of $90,000 in 2003 and $86,000 in 2004." Wallace's marginal tax rate is 31%.
If Wallace's year-end LIFO inventory balance was $400,000, their inventory based on FIFO would be:
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INVF = INVL + LIFO reserve =$400,000 + $86,000 = $486,000
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COGSF = COGSL - (LIFO reserveE - LIFO reserveB) = $70,000 - ($86,000 - $90,000) = $74,000
Brigham Corporation uses the last-in, first-out (LIFO) method of accounting for inventory. For the year 2005, the following is provided:
If Brigham had used first-in, first-out (FIFO), the COGS for 2005 would be:
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FIFO COGS = LIFO COGS ? change in LIFO reserve. Therefore, $24,000 ? ($6,000 ? 2,250) = $20,250.
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:
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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
An analyst gathers the following information about a firm:
To convert the financial statements to a FIFO basis, the amount the analyst should add to the stockholders' equity is closest to:
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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
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:
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FIFO INV = LIFO INV + LIFO Reserve
X = 22,000 + 4,000
X = 26,000
The formula to convert cost of goods sold (COGS) from last in, first out (LIFO) to first in, first out (FIFO) is:
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The formula for converting COGS from LIFO to FIFO is COGSF = COGSL ? (LIFO reserveE ? LIFO reserveB)
First in, first out (FIFO) inventory equals:
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To convert LIFO inventory balances to a FIFO basis, simply add the LIFO reserve to the LIFO inventory: INVF = INVL + LIFO Reserve
Given the following data:
What is the Ending LIFO reserve?
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Ending LIFO Reserve = (LIFO COGS ? FIFO COGS) + Beginning LIFO Reserve = (6,100 ? 4,300) + 2,300 = $4,100.
The following information has been gathered about a firm:
What is the FIFO COGS?
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FIFO COGS = LIFO COGS – change in LIFO reserve = $15,000 – (4,000 ? 2,500) = $13,500
The formula to convert an ending inventory value from the LIFO to the FIFO method is to:
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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.
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 |
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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.
Given the following inventory information about the Buckner Company:
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%?
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Adjustment to retained earnings = LIFO reserve (1 ? t) = $2,500(1 ? 0.4) = $1,500
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?
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LIFO reserve = FIFO inventory ? LIFO inventory = 9,000 ? 6,500 = 2,500
The Orchard Supply Company uses last in, first out (LIFO) inventory valuation. Orchard Supply had a cost of goods sold (COGS) of $1 million for the period. The inventory at the beginning of the period was $500,000 and the inventory at the end of the period was $600,000. Orchard Supply's LIFO reserve was $100,000 at the end of the previous year and $200,000 at the end of the current year. What is Orchard Supply's COGS according to first in, first out (FIFO) inventory valuation?
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FIFO COGS = LIFO COGS ? change in LIFO reserve FIFO COGS = $1 million ? $100,000 = $900,000
A financial analyst could adjust the current ratio in which a company uses the LIFO inventory valuation method to the FIFO method by:
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The LIFO reserve increases the inventory value under FIFO and inventory is included in the numerator in the current ratio.
Granulated Corp. uses the last in, first out (LIFO) inventory cost flow assumption. Selected information from Granulated’s financial statements for the years ended December 31, 20X3 and 20X4 was as follows (in $):
20X3 |
20X4 | |
Beginning Inventory |
4,375,000 |
5,525,000 |
Purchases |
10,200,000 |
11,300,000 |
Ending Inventory |
5,525,000 |
6,100,000 |
Beginning LIFO Reserve |
825,000 |
975,000 |
Ending LIFO Reserve |
975,000 |
1,125,000 |
If Granulated changed from LIFO to first in, first out (FIFO) for 20X4, Granulated’s cost of goods sold (COGS) in 20X4 under FIFO would be:
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Granulated’s 20X4 LIFO cost of goods sold (beginning inventory plus purchases less ending inventory) was ($5,525,000 + $11,300,000 ? $6,100,000 =) $10,725,000. To convert to FIFO the LIFO cost of goods sold would be reduced by the increase in the LIFO reserve during 20X4 ($1,125,000 ? $975,000 =) $150,000. The FIFO COGS in 2001 was ($10,725,000 ? $150,000 =) $10,575,000.
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:
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FIFO COGS is reduced when a LIFO reserve is increased. So, COGS = 80,000 ? (11,000 ? 8,000) = 77,000.
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?
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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
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:
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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
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?
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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)].
thx
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