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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Discuss the LIFO cost flow assumption. Under what conditions would a company’s ending inventory differ under a perpetual and a periodic LIFO system?

To determine

Explain LIFO cost flow assumption and identify the situations when the ending inventory of company would differ under a perpetual and a periodic LIFO system.

Explanation

Inventory cost flow assumptions: These are the methods used by the companies to compute the cost assigned to inventory from the time inventory is bought to the time inventory is sold. The following are the three inventory cost flow assumptions:

In Last-in-First-Out (LIFO) method, the items that are purchased recently are sold first. So, the value of the ending inventory consist the initial cost for the remaining unsold items. In this cost flow assumption, the gross profit is determined by matching the recent incurred costs with the current revenues...

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