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Chapter 24: 18Q (page 1445)

Dierdorf Inc., a closely held corporation, has decided to go public. The controller, Ed Floyd, is concerned with presenting interim data when a LIFO inventory valuation is used. What problems are encountered with LIFO inventories when quarterly data are presented?

Short Answer

Expert verified

LIFO basis can be used quarterly but not throughout the year.

Step by step solution

01

Meaning of LIFO

LIFO stands for "Last-In, First-Out.鈥� This method is utilized for recording the cost flow of inventory in the business. The LIFO strategy expects that themost important method that comprises a company's stock is sold first.

02

Explaining the problems that are encountered with LIFO inventories when quarterly data are presented.

When the LIFO basis is used for quarterly reporting, there is concern that the LIFO basis may be reduced in any quarter but not for the entire year. If the stock basis closes at the end of the most recent year, a purchase savings (equation account) should be established at that time to better reflect transaction costs and obtain a more practical interim statement for net income.

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Most popular questions from this chapter

Under IFRS, share dividends declared after the statement of financial position date but before the end of the subsequent events period are:

a) accounted for similar to errors as a prior period adjustment.

b) adjusted subsequent events, because they are paid from prior year earnings.

c) not adjusted in the current year鈥檚 financial statements.

d) recognized on a prospective basis from the date of declaration

Identifiable assets for the seven industry segments of Foley Corporation are:

Penley $ 500 Cheng 200

Konami 550 Takuhi 150

KSC 250 Molina 475

Red Moon 400

Based only on the identifiable assets test, which industry segments are reportable?

Explain the meaning of the following terms: (a) common size analysis, (b) vertical analysis, (c) horizontal analysis, and (d) percentage analysis.

Answer each of the questions in the following unrelated situations.

b) A company had an average inventory last year of $200,000 and its inventory turnover was 5. If sales volume and unit cost remain the same this year as last and inventory turnover is 8 this year, what will average inventory have to be during the current year?

(Horizontal and Vertical Analysis) Presented below is the comparative balance sheet for Gilmour Company.

GILMOUR COMPANY

COMPARATIVE BALANCE SHEET

AS OF DECEMBER 31, 2018 AND 2017

December 31

2018

2017

Assets

Cash

\( 180,000

\) 275,000

Accounts receivable (net)

220,000

155,000

Short-term investments

270,000

150,000

Inventories

1,060,000

980,000

Prepaid expenses

25,000

25,000

Plant & equipment

2,585,000

1,950,000

Accumulated depreciation

(1,000,000)

(750,000)

\(3,340,000

(2,785,000)

Liabilities and Stockholders鈥� Equity

Accounts payable

\) 50,000

\( 75,000

Accrued expenses

170,000

200,000

Bonds payable

450,000

190,000

Common stock

2,100,000

1,770,000

Retained earnings

570,000

550,000

\)3,340,000

(2,785,000)

Instructions

(Round to two decimal places.)

  1. Of what value is the additional information provided in part (a)?
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