Intermediate Accounting: Reporting And Analysis
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
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1. Earl Co. was formed on January 2, 2007, to sell a single product. Over a two-
year period, Earl's acquisition costs have increased steadily. Physical quantities held in
inventory were equal to three months' sales at December 31, 2007, and zero at
December 31, 2008. Assuming the periodic inventory system, the inventory cost
method which reports the highest amount of each of the following is
Inventory
December 31, 2007
LIFO
LIFO
FIFO
FIFO
Cost of Goods Sold
2008
FIFO
LIFO
FIFO
LIFO
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Transcribed Image Text:1. Earl Co. was formed on January 2, 2007, to sell a single product. Over a two- year period, Earl's acquisition costs have increased steadily. Physical quantities held in inventory were equal to three months' sales at December 31, 2007, and zero at December 31, 2008. Assuming the periodic inventory system, the inventory cost method which reports the highest amount of each of the following is Inventory December 31, 2007 LIFO LIFO FIFO FIFO Cost of Goods Sold 2008 FIFO LIFO FIFO LIFO
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  • A large manufacturer of truck and car tires recently changed its cost-flow assumption method for inventories at the beginning of 2014. The manufacturer has been in operation for almost 40 years, and for the last decade it has reported moderate growth in revenues. The firm changed from the LIFO method to the FIFO method and reported the following information (amounts in millions): REQUIRED Calculate the inventory turnover ratio for 2014 using the LIFO and FIFO cost-flow assumption methods. Explain why the costs assigned to inventory under LIFO at the end of 2013 and 2014 are so much less than they are under FIFO.
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