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Comparing inventory methods Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results. A. In each space that follows, place the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices. B. Why would management prefer to use LIFO over FIFO in periods of rising prices?

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Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535

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Section
BuyFindarrow_forward

Corporate Financial Accounting

14th Edition
Carl Warren + 2 others
Publisher: Cengage Learning
ISBN: 9781305653535
Chapter 6, Problem 6.14EX
Textbook Problem
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Comparing inventory methods

Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results.

A. In each space that follows, place the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices.

Chapter 6, Problem 6.14EX, Comparing inventory methods Assume that a firm separately determined inventory under FIFO and LIFO B. Why would management prefer to use LIFO over FIFO in periods of rising prices?

(a)

To determine

Comparing inventory methods:

The cost flow is different for different methods of valuation of inventory like LIFO, FIFO and weighted average inventory method. Therefore, the three methods result in different ending inventory value, cost of merchandise sold, net income and gross profit.

To place: correct signs for each of the following comparisons assuming in the period of rising prices.

Explanation of Solution

During the period of rising prices, the LIFO method matches the cost against sales on the income statement of the company. As the costs are higher in period of rising prices, the cost nearly matches with the revenues of the company. Therefore the net income under LIFO will be lesser.

This would lead to lower gross profit and this would offer lower income taxes to the company...

(b)

To determine

To discuss: the reason that LIFO method that would be preferred than FIFO method by the company in the period of rising prices.

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Chapter 6 Solutions

Corporate Financial Accounting
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Ch. 6 - Cost flow methods The following three identical...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Periodic inventory using FIFO, UFO, and weighted...Ch. 6 - Lower-of-cost-or-market method On the basis of the...Ch. 6 - Effect of inventory errors During the taking of...Ch. 6 - Control of inventories Triple Creek Hardware Store...Ch. 6 - Control of inventories Hardcase Luggage Shop is a...Ch. 6 - Perpetual inventory using FIFO Beginning...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Beginning...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - FIFO and UFO costs under perpetual inventory...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Weighted average cost flow method under perpetual...Ch. 6 - Perpetual inventory using FIFO Assume that the...Ch. 6 - Perpetual inventory using LIFO Assume that the...Ch. 6 - Periodic inventory by three methods The units of...Ch. 6 - Periodic inventory by three methods; cost of goods...Ch. 6 - Comparing inventory methods Assume that a firm...Ch. 6 - Lower-of-cost-or-market inventory On the basis of...Ch. 6 - Inventory on the balance sheet Based on the data...Ch. 6 - Effect of errors n physical inventory Madison...Ch. 6 - Effect of errors in physical inventory Fonda...Ch. 6 - Error in inventory During 20Y5, the accountant...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method A business using the retail method...Ch. 6 - Retail method On the basis of the following data,...Ch. 6 - Gross profit method The inventory was destroyed by...Ch. 6 - Gross profit method Based on the following data,...Ch. 6 - Gross profit method Based on the following data,...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Dymac...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - FIFO perpetual inventory The beginning inventory...Ch. 6 - LIFO perpetual inventory The beginning inventory...Ch. 6 - Weighted average cost method with perpetual...Ch. 6 - Periodic inventory by three methods The beginning...Ch. 6 - Periodic inventory by three methods Pappas...Ch. 6 - Lower-of-cost-or-market inventory Data on the...Ch. 6 - Retail method; gross profit method Selected data...Ch. 6 - Continuing Company AnalysisAmazon: Inventory...Ch. 6 - Costco, Walmart, Nordstrom: Inventory turnover and...Ch. 6 - Monster Beverage and Brown-Forman: Inventory...Ch. 6 - Hewlett-Packard and Apple: Inventory turnover and...Ch. 6 - Ethics in Action Sizemo Elektroniks sells...Ch. 6 - Communication Golden Eagle Company began...

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