Intermediate Accounting: Reporting...

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



Intermediate Accounting: Reporting...

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

Interpretation of GAAP and Ethical Issues Robin Smith is considering buying shares in Mah Company. The company has reported an increase in net income this year. On careful reading of the notes to the financial statements, Robin learns that the company had a LIFO liquidation this year. Robin understands what caused the liquidation but has asked you for advice about how to interpret it.


  1. 1. Prepare a short memo to Robin to answer the question.
  2. 2. Could a LIFO liquidation profit create ethical issues?


To determine

Write a memo to Person RS for the interpretation of LIFO liquidation in the financial statements




Person RS,

The LIFO liquidation means when costs of earlier periods are included in goods sold that result in lower amount of cost of goods sold and higher profit. During the evaluation of trend in profits of a company, there might be certain reasons of LIFO liquidation that should be considered. Several reasons may lead to different interpretations of the holding gain. The LIFO liquidation profit increases the net income and is reported in the notes to financial statements. The most possible reasons are:

  • The implementation of just-in time inventory (JIT) system: In this case, the holding gain would represent an increase in wealth of the company because the stock would not be replaced. But, the holding gain should be excluded from net income while using trend analysis because it cannot be frequent in each year...


To determine

Explain whether the LIFO liquidation profit could create an ethical issue.

Still sussing out bartleby?

Check out a sample textbook solution.

See a sample solution

The Solution to Your Study Problems

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

Get Started

Additional Business Solutions

Find more solutions based on key concepts

Show solutions add

List seven reasons risk management might increase the value of a firm.

Fundamentals of Financial Management (MindTap Course List)

What is equity theory?

Foundations of Business (MindTap Course List)

Post the following entry to the general ledger and the subsidiary ledger.

College Accounting (Book Only): A Career Approach

FINDING THE REQUIRED INTEREST RATE Your parents will retire in 18 years. They currently have 250,000 saved, and...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)