Question

1.

To adjust a company’s LIFO cost of goods sold to FIFO cost of goods sold

the ending LIFO reserve is added to LIFO cost of goods sold.

the ending LIFO reserve is subtracted from LIFO cost of goods sold.

an increase in the LIFO reserve is subtracted from LIFO cost of goods sold.

a decrease in the LIFO reserve is subtracted from LIFO cost of goods sold.

2.

All of the following statements are true regarding the LIFO reserve except:

Companies using LIFO are required to report the LIFO reserve.

The financial statement differences of using LIFO normally increase the longer a company uses LIFO.

Current ratios and the inventory turnover can be significantly affected if a company has material LIFO reserves.

The equation (LIFO inventory – LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO.

3.

Use the following information for Tamarisk, Inc., Metlock, Inc., Grouper Industries, and Evans Services to answer the question “What is Grouper's LIFO reserve for 2021?”

(amounts in $ millions)	Tamarisk	Metlock	Grouper	Evans
Inventory Method for 2021 & 2022	LIFO	FIFO	LIFO	FIFO
2021 Ending inventory assuming LIFO	$316	0	$221	0
2021 Ending inventory assuming FIFO	$426	$543	$309	$669
2022 Ending inventory assuming LIFO	$436	0	$174	0
2022 Ending inventory assuming FIFO	$574	$619	$210	$548
2021 Current assets (reported on balance sheet)	$1678	$2041	$1320	$2749
2021 Current liabilities	$988	$1203	$549	$1191
2022 Current assets (reported on balance sheet)	$2228	$2605	$1091	$2397
2022 Current liabilities	$1319	$1415	$474	$1004
2022 Cost of goods sold	$4679	$5031	$3005	$6997

$47

$530

$88

$36

4.

Use the following information for Pina Colada Corp., Sunland Company, Monty Industries, and Cynthia Services to answer the question “Using the LIFO reserve adjustment, which company would have the strongest liquidity position for 2022 as expressed by the current ratio?”

(amounts in $ millions)	Pina Colada	Sunland	Monty	Cynthia
Inventory Method for 2021 & 2022	LIFO	FIFO	LIFO	FIFO
2021 Ending inventory assuming LIFO	$335	0	$233	0
2021 Ending inventory assuming FIFO	$421	$523	$298	$658
2022 Ending inventory assuming LIFO	$428	0	$162	0
2022 Ending inventory assuming FIFO	$591	$624	$197	$540
2021 Current assets (reported on balance sheet)	$1681	$2024	$1299	$2744
2021 Current liabilities	$975	$1219	$544	$1188
2022 Current assets (reported on balance sheet)	$2236	$2604	$1104	$2384
2022 Current liabilities	$1299	$1405	$457	$1000
2022 Cost of goods sold	$4690	$5044	$2989	$6995

Sunland

Pina Colada

Monty

Cynthia

5.

Use the following information for Marigold Corp., Nash's Trading Post, LLC, Blue Spruce Industries, and Evans Services to answer the question “Using LIFO, what is Marigold's inventory turnover for 2022 (to the closest decimal place)?”

(amounts in $ millions)	Marigold	Nash's Trading Post	Blue Spruce	Evans
Inventory Method for 2021 & 2022	LIFO	FIFO	LIFO	FIFO
2021 Ending inventory assuming LIFO	$322	0	$243	0
2021 Ending inventory assuming FIFO	$441	$525	$318	$663
2022 Ending inventory assuming LIFO	$422	0	$179	0
2022 Ending inventory assuming FIFO	$604	$598	$199	$520
2021 Current assets (reported on balance sheet)	$1697	$2009	$1300	$2770
2021 Current liabilities	$1003	$1221	$569	$1180
2022 Current assets (reported on balance sheet)	$2209	$2623	$1100	$2406
2022 Current liabilities	$1290	$1398	$453	$982
2022 Cost of goods sold	$4700	$5028	$3026	$6990

6.7 times

7.8 times

9.0 times

12.6 times

6.

Use the following information for Skysong, Inc., Kingbird, Inc., Bridgeport Industries, and Evans Services to answer the question “Using the LIFO adjustment, which company shows the greatest improvement in its current ratio from 2021 to 2022?”

(amounts in $ millions)	Skysong	Kingbird	Bridgeport	Evans
Inventory Method for 2022 & 2021	LIFO	FIFO	LIFO	FIFO
2021 Ending inventory assuming LIFO	$328	0	$228	0
2021 Ending inventory assuming FIFO	$427	$533	$305	$663
2022 Ending inventory assuming LIFO	$433	0	$162	0
2022 Ending inventory assuming FIFO	$580	$612	$197	$537
2021 Current assets (reported on balance sheet)	$1667	$2027	$1315	$2759
2021 Current liabilities	$981	$1210	$545	$1201
2022 Current assets (reported on balance sheet)	$2219	$2606	$1103	$2389
2022 Crrent liabilities	$1307	$1411	$458	$992
2022 Cost of goods sold	$4691	$5049	$2995	$7010

Bridgeport

Evans

Skysong

Kingbird

7.

Manufactured inventory that has begun the production process but is not yet completed is

finished goods.

raw materials.

merchandise inventory.

work in process.

8.

Each of the following is a feature of internal control except

independent internal verifications.

limited access to assets.

generic design of documents.

authorization of transactions.

Answer 1

1. an increase in the LIFO reserve is subtracted from LIFO cost of goods sold.

FIFO COGS = LIFO COGS – (ending LIFO reserve – beginning LIFO reserve)

2. The equation (LIFO inventory – LIFO reserve = FIFO inventory) adjusts the inventory balance from LIFO to FIFO.

3. $88 (309-221)

4. Cynthia

(amounts in $ millions)		Pina Colada	Sunland	Monty	Cynthia
Inventory Method for 2021 & 2022	1	LIFO	FIFO	LIFO	FIFO
2021 Ending inventory assuming LIFO	2	$335	0	$233	0
2021 Ending inventory assuming FIFO	3	$421	$523	$298	$658
2022 Ending inventory assuming LIFO	4	$428	0	$162	0
2022 Ending inventory assuming FIFO	5	$591	$624	$197	$540
LIFO Reserve	6	$163	$624	$35	$540
2021 Current assets (reported on balance sheet)	7	$1,681	$2,024	$1,299	$2,744
2021 Current liabilities	8	$975	$1,219	$544	$1,188
2022 Current assets (reported on balance sheet)	9	$2,236	$2,604	$1,104	$2,384
2022 Current liabilities	10	$1,299	$1,405	$457	$1,000
Current Ratio (6+/-9)/10	11	1.60	2.30	2.34	2.92
2022 Cost of goods sold	12	$4,690	$5,044	$2,989	$6,995