Chapter 8, Problem 8CA

To determine

Introduction:

Inventory includes raw materials, work-in-process goods and finished products, which are held with the purpose of sale.

Given:

G Corporation is a medium-sized manufacturing company with two divisions and three subsidiaries, all located in the United States. The Metallic Division manufactures metal castings for the automotive industry, and the Plastic Division produces small plastic items for electrical products and other uses. The three subsidiaries manufacture various products for other industrial users. G Corporation plans to change from the lower of first-in first-out (FIFO)- cost or market method of inventory valuation to the last-in, first-out (LIFO) method of inventory valuation to obtain tax benefits. To make the method acceptable for tax purposes, the change will also be made for its annual financial statements.

(a)

To describe:

The establishment of and subsequent pricing procedures for each of the following LIFO inventory methods.

(1) LIFO applied to units of product when the periodic inventory system is used.

(2) Application of the dollar-value method to LIFO units of product.

To determine

(b)

To distinguish:

Discuss the specific advantages and disadvantages of using the dollar-value LIFO application as compared to specific goods LIFO (unit LIFO). (Ignore income tax considerations.)

To determine

(c)

To discuss:

The general advantages and disadvantages claimed for LIFO methods.