Advanced Accounting
12th Edition
ISBN: 9781305084858
Author: Paul M. Fischer, William J. Tayler, Rita H. Cheng
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Concept explainers
Question
Chapter 12, Problem 1.6E
To determine
LIFO:
Last in First out (LIFO) Process is basically defined as the process in which the last amount of inventory that is purchased is the first one to be sold.
Using the LIFO method if the year-to-date cost of sales per unit decreased.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
The management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense.
Assuming that the price the company pays for inventory is increasing, which method will:
(a) provide the highest net income?
(b) provide the highest ending inventory?
|(c) result in the lowest income tax expense?
(d) result in the most stable earnings over a number of years?
Assume that the ending inventory of a merchandising firm is overstated by $40,000.
a. By how much and in what direction (overstated or understated) will the firms cost of goods be misstated?
b. If this error is not corrected, what effect will it have on the subsequent period's operating income?
c. If this error is not corrected, what effect will it have on the total operating income of the two periods (the period in which there is an error and the subsequent period) combined?
The management of Milque Corp. is considering the effects of inventory-costing methods on its financial statements and its income tax
expense. Assuming that the cost the company pays for inventory is increasing, which method will:
(a)
(b)
(c)
Provide the highest net income?
Provide the highest ending inventory?
Result in the lowest income tax expense?
10
Chapter 12 Solutions
Advanced Accounting
Ch. 12 - Prob. 1UTICh. 12 - Prob. 2UTICh. 12 - Prob. 3UTICh. 12 - Prob. 4UTICh. 12 - Prob. 1.1ECh. 12 - Prob. 1.2ECh. 12 - Prob. 1.3ECh. 12 - Prob. 1.4ECh. 12 - Prob. 1.5ECh. 12 - Prob. 1.6E
Ch. 12 - Prob. 2ECh. 12 - Prob. 3ECh. 12 - Prob. 4.1ECh. 12 - Prob. 4.2ECh. 12 - Prob. 6ECh. 12 - Prob. 7ECh. 12 - Ratable allocation for nonordinary items. Baxter...Ch. 12 - Prob. 9.1ECh. 12 - Prob. 9.2ECh. 12 - Prob. 9.3ECh. 12 - Prob. 10ECh. 12 - Prob. 12.1PCh. 12 - Prob. 12.2PCh. 12 - Prob. 12.3PCh. 12 - Prob. 12.4PCh. 12 - Prob. 12.5PCh. 12 - Prob. 12.6PCh. 12 - Prob. 12.7.1PCh. 12 - Prob. 12.7.2PCh. 12 - Prob. 12.7.3PCh. 12 - Prob. 12.8.1PCh. 12 - Prob. 12.8.2P
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- You are the bookkeeper at a small merchandising firm. You are comparing the income statements from the last three years. You notice that the Purchases Returns and Allowances account (as a percentage of net sales) has been increasing at an alarming rate. If you were a manager, to whom would you speak in the organization to help you understand why so much merchandise is being returned? What types of questions would you ask?arrow_forwardBhushan Company has been using LIFO for inventory purposes because it would prefer to keep gross profits low for tax purposes. In its second year of operation (20-2), the controller pointed out that this strategy did not appear to work and suggested that FIFO cost of goods sold would have been higher than LIFO cost of goods sold for 20-2. Is this possible? REQUIRED Using the information provided, compute the cost of goods sold for 20-1 and 20-2 comparing the LIFO and FIFO methods.arrow_forwardCase Study: Phil Barely has his own business. He recently heard that there are different methods of valuing inventory and that some methods result in a lower net income, which can mean lower taxes. He sees a wonderful opportunity to minimize inventory value and net income by changing his inventory costing method each year. Directions: In writing explain to Phil why he would be violating an accounting principle if he implemented his idea. (Hint: Don’t forget to include the basis of your discussion, the accounting principle).arrow_forward
- Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.arrow_forwardThe management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? Select the inventory-costing method that will provide the highest net income (b) provide the highest ending inventory? Select the inventory-costing method that will provide the highest ending inventory (c) result in the lowest income tax expense? Select the inventory-costing method that will result in the lowest income tax expense (d) result in the most stable earnings over a number of years? Select the inventory-costing method that will result in the most stable earnings over a number of yearsarrow_forwardYou are the financial officer for Music Plus, a retailer that sells goods for home entertainment needs. The business owner, Vic Velakturi, recently reviewed the annual financial statements you prepared and sent you an e-mail stating that he thinks you overstated net income. He explains that although he has invested a great deal in security, he is sure shoplifting and other forms of inventory shrinkage have occurred, but he does not see any deduction for shrinkage on the income statement. The store uses a perpetual inventory system. Required Prepare a brief memorandum that responds to the owner’s concerns.arrow_forward
- Phil Barely has his own business. He recently heard that there are different methods of valuing inventory and that some methods result in a lower net income, which can mean lower taxes. He sees a wonderful opportunity to minimize inventory value and net income by changing his inventory costing method each year. Directions: In writing explain to Phil why he would be violating an accounting principle if he implemented his idea. (Hint: Don’t forget to include the basis of your discussion, the accounting principle).arrow_forwardYour client, Corp. B, is a trading or distributor of home living product. Corp B import goods and sells them to its customers who are retail stores. In the current year, Corp. B's financial statements reported an increase in net income. The increase was driven by increased sales. Corp B's accounts receivable also increased rapidly. Corp B reportedly has many new customers.You are informed that there may be a fictitious revenue generated using fictitious customers. Corp B makes fictitious credit sales using bogus customers, and when receivables are due, management make kiting in order to look like the fictitious accounts receivable paid by their customer. Question:a. Explain how the fraud scheme can be carried out by Corp B?b. What kind of audit procedure will you use to examine for possible kiting?arrow_forwardYour client, Corp. B, is a trading or distributor of home living product. Corp B import goods and sells them to its customers who are retail stores. In the current year, Corp. B's financial statements reported an increase in net income. The increase was driven by increased sales. Corp B's accounts receivable also increased rapidly. Corp B reportedly has many new customers.You are informed that there may be a fictitious revenue generated using fictitious customers. Corp B makes fictitious credit sales using bogus customers, and when receivables are due, management make kiting in order to look like the fictitious accounts receivable paid by their customer. What kind of audit procedure will you use to examine for possible kiting?arrow_forward
- The new owners of Sheraton Natural Foods Inc. have hired you to help them diagnose and cure problems that the company has had in maintaining adequate liquidity. As a first step, you perform a liquidity analysis. You then do an analysis of the company’s short-term activity ratios. Your calculations and appropriate industry norms are listed. Ratio Sheraton Industry Norm Current ratio 4.5 4.0 Quick ratio 2.0 3.1 Inventory turnover 6.0 10.4 Average collection period 73 days 52 days Average payment period 31 days 40 days Requirements: What recommendations relative to the amount and the handling of inventory could you make…arrow_forwardNancy Thomas is the chief accountant at Company C, a manufacturer of medical equipment. The company is under pressure from creditors to increase its earnings. Shortly after the end of the fiscal year, the company performed a physical count of the inventory. A significant amount of inventory shrinkage was discovered. The amount is so large that it will result in a significant drop in earnings this period. The decrease in earnings will hurt the company's chance at getting a much needed loan at a low interest rate. Nancy is thinking of not reporting the shrinkage until next period, after the company gets its loan. What should Nancy do in this situation? Why?arrow_forwardGuthrie Company receives orders from customers and records revenue at that time, even though it has not yet delivered products or services to the customers. what accounting assumption violate and how it should be done? Because of inflation, Cross Company adjusts its financial statements each year to show the current purchasing power for all items.what accounting assumption violate and how it should be done? David Thomas combines his personal transactions and business transactions when he prepares his company’s financial statements so that he can tell how well he is doing on an “overall” basis.what accounting assumption violate and how it should be done? At the end of each year, Vann Company reports its economic resources on a liquidation basis even though it is likely to operate in the future. what accounting assumption violate and how it should be done?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
- College Accounting (Book Only): A Career ApproachAccountingISBN:9781337280570Author:Scott, Cathy J.Publisher:South-Western College PubCornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage LearningPrinciples of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax College
- Financial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
College Accounting (Book Only): A Career Approach
Accounting
ISBN:9781337280570
Author:Scott, Cathy J.
Publisher:South-Western College Pub
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Principles of Accounting Volume 2
Accounting
ISBN:9781947172609
Author:OpenStax
Publisher:OpenStax College
Financial Accounting: The Impact on Decision Make...
Accounting
ISBN:9781305654174
Author:Gary A. Porter, Curtis L. Norton
Publisher:Cengage Learning
College Accounting, Chapters 1-27
Accounting
ISBN:9781337794756
Author:HEINTZ, James A.
Publisher:Cengage Learning,
Chapter 6 Merchandise Inventory; Author: Vicki Stewart;https://www.youtube.com/watch?v=DnrcQLD2yKU;License: Standard YouTube License, CC-BY
Accounting for Merchandising Operations Recording Purchases of Merchandise; Author: Socrat Ghadban;https://www.youtube.com/watch?v=iQp5UoYpG20;License: Standard Youtube License