Two Basic Questions determine, something, critical, together, convert

ruchita

Two basic questions I'm hoping I can get help with...unrelated to each other

1. What is the formula to convert LIFO net income to FIFO net income? Do you add (change in LIFO reserve * (1 - t)) to LIFO net income? Or do you simply add (LIFO reserve * (1 - t))? Or is it something else all together?

2. Can someone give me basic help on how to determine the appropriate critical values to select in a t-test for example? I often find myself struggling to determine whether to divide the significance level by two or not. The degrees of freedom obviously comes easy but I have trouble with the sig level. I know this is a little vague, but any help would be greatly appreciated.

mengxu

1. i think the only component affecting the I.S. is COGS, which is an expense.

COGS FIFO adjustment is: COGS_L - Change_LIFO_reserve

So, if lifo reserve is increasing (as would be expected), you're COGS decreases by CH_LIFO_res, which would mean your net income increases by (1-t)*(CH_LIFO_res).

2. If it is two-tailed, you take alpha/2 when looking up the critical value. Whenever the null hypothesis is something = something, like b = 0, this results in two tails since it is invalid in either direction. I think all tests but the F-test for this curriculum use two-tails since you are testing significance. IF a value = 0, it's insignificant, so we want to make sure we're far enough from 0 to be significant.

help?

Newhuman

grumble Wrote:
-------------------------------------------------------
> You subtract the change in the LIFO reserve *(1-t)
> to = FIFO net income. This is important to
> remember! When prices are rising, FIFO NI > LIFO
> NI.


Are you sure?
If prices are rising and inventory stable or rising LIFO reserve will rise as well. If you subtract (change in the LIFO reserve *(1-t)) from LIFO income you will get FIFO NI < LIFO NI not as you stated.

BelalM

grumble, read the first half of what you wrote again compared to your last equation ( which is correct)

i always go back to components and why or i can get confused.

senlinlang

BTW, as new material this topic has a good chance to be on the exam.

wxs1986

To the OP - on the t-test front just remember:

- if it's an equal sign then use two tails
- if it's greater than or equal to / less than or equal to then use a 1 tailed test

redskins44

So if the question tells us it's a two-tailed test and asks us whether or not we can reject the null at 5% significance level, do I find the critical t using .05 or .025?

giants2010

use two-tailed part under .05 or one-tailed part under .025