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natta225 [31]
3 years ago
10

Assuming purchase costs are declining and a periodic inventory system is used, determine the statements below which correctly de

scribe what is happening to cost of goods sold under FIFO, LIFO and weighted average cost flow methods.
a. In a situation where prices are declining, companies using LIFO will report the smallest cost of goods sold.b. Companies using FIFO will report the smallest cost of goods sold (compared to companies using LIFO or weighted average.)c. Weighted average cost of goods sold will be between FIFO and LIFO costs of goods sold.d. Companies using LIFO will pay higher taxes than companies using FIFO, assuming all else being equal.e. Companies using FIFO will report the highest gross profit and net income.f. Companies using LIFO will report the highest ending inventory on their balance sheets (as compared to companies using FIFO or weighted average,)
Business
2 answers:
Sonbull [250]3 years ago
7 0

Answer:

a. In a situation where prices are declining, companies using LIFO will report the smallest cost of goods sold.

Explanation:

The last in first out method (LIFO) generally results in less net income because Cost of Goods Sold is greater. The reason is that normally prices increase with time due to inflation.

However, the opposite is true when prices are falling, LIFO will report the smallest cost of goods sold.

<u>The reason is the last items are assumed to be sold first, hence the figure of cost of goods sold will be smaller since the costs are smaller compared to the stock bought previously which are more expensive. </u>

sveta [45]3 years ago
6 0

Answer: B

Explanation: with a decline in purchase and periodic inventory system is used it's is assumed that LIFO ( last in first out) would report higher sales unlike FIFO

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The following items appear on the balance sheet of a company with a one-year operating cycle. Identify the proper classification
nexus9112 [7]

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2 years ago
Flow of Accounts into Financial Statements The balances for the accounts that follow appear in the Adjusted Trial Balance column
Luden [163]

Answer:

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5. Fees Earned will flow in the Income Statement

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8 0
3 years ago
Measuring Sustainable Earnings Harnishfeger Corporation was a mining machinery and equipment company based in Wisconsin. The com
Katena32 [7]

Answer:

Harnischfeger Corporation

Measuring Sustainable Earnings

a. Sustainable earnings = $1,530,000

b. Most analysts at the capital market would like to recalculate the net income to the actual income without the change in Harnischfeger depreciation accounting policy in order to understand the effect of the change.

Explanation:

a) Data and Calculations:

Excerpts from Harnischfeger financial statements

(in thousands)

Income before income taxes, equity items,

and cumulative effect of accounting method change    5,838

Provision for income taxes                                              (2,452)

Income after taxes                                                            3,386

Equity items                                                                         858

Cumulative effect of change in depreciation method  11,005

Net income                                                                      15,249

Sustainable Earning:

(in thousands)

Income before income taxes, equity items,

and cumulative effect of accounting method change    5,838

Change in estimate                                                         (3,200)

Adjusted income                                                              2,638

Income taxes   (42%)                                                        (1,108)

Income after taxes                                                             1,530

Income taxes rate = 2,452/5838 * 100 = 42%

b) Sustainable earnings differ from actual net earnings or income by removing the amount of irregular revenues, expenses, gains, and losses included in the financial year's net income. Sustainable earnings enable the users of financial statements to estimate a company's future earnings without the “noise” generated by irregular accounting items around the net income figure.

6 0
3 years ago
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