The 1970s were a period of historically high inflation. The 1976 financial statements of Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are stated at the lower of cost or market. In 1976 the company changed its method of accounting from first-in, first-out (FIFO) to last-in, first-out (LIFO) for most of its U.S. inventories. The change to LIFO reduced net income in 1976 by $81 million or $0.86 a share. There is no effect on prior years' earnings resulting from the change to LIFO in 1976 and, accordingly, prior years' earnings have not been restated. If the FIFO method of inventory accounting had been used by the company, inventories on December 31, 1976, would have been $166 million higher than reported. Required: 4. Explain whether your answers to Requirements 1 and 2 would change if you were discussing a change to LIFO for a Ford dealer.
The 1970s were a period of historically high inflation. The 1976 financial statements of Ford Motor Company included the following note: Note 1 (in part): Inventory valuation. Inventories are stated at the lower of cost or market. In 1976 the company changed its method of accounting from first-in, first-out (FIFO) to last-in, first-out (LIFO) for most of its U.S. inventories. The change to LIFO reduced net income in 1976 by $81 million or $0.86 a share. There is no effect on prior years' earnings resulting from the change to LIFO in 1976 and, accordingly, prior years' earnings have not been restated. If the FIFO method of inventory accounting had been used by the company, inventories on December 31, 1976, would have been $166 million higher than reported. Required: 4. Explain whether your answers to Requirements 1 and 2 would change if you were discussing a change to LIFO for a Ford dealer.
Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN:9781337788281
Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach
Chapter7: Inventories: Cost Measurement And Flow Assumptions
Section: Chapter Questions
Problem 5C
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