Accounting Warning Signs

Why do we do this to ourselves???

i put taxble income is reducing…can’t remember the a or b or c or d. coz. this is a LIFO liquadation situation with a reducing the stock not and not coz of price reduction. In a LIFO liquadation situation, you need to reduce the LIFO investory in the Income statment so COGS is increased. whicj will reduce the the net income or taxable income. please conrect me , if i am wrong

bannisja Wrote: ------------------------------------------------------- > slouis- what would’ve been a good answer there > then? i don’t remember that q well at all. Don’t recall choices. I was just saying not all lifo liquidations are manipulative. In general, I want to say it is not a red flag if the reduction in inventory is justified by a change to an inv system that better reflects average industry practices.

I think the LIFO liquidation would make COGS artificially low. Usually COGS is higher making it the more conservative choice for the IS. If prices were declining this wouldn’t be an issue but since they dipped into old inventory to reduce cogs, it’s an issue and should be adjusted. NJerseyGuy Wrote: ------------------------------------------------------- > i put taxble income is reducing…can’t remember > the a or b or c or d. > > coz. this is a LIFO liquadation situation with a > reducing the stock not and not coz of price > reduction. In a LIFO liquadation situation, you > need to reduce the LIFO investory in the Income > statment so COGS is increased. whicj will reduce > the the net income or taxable income. please > conrect me , if i am wrong

quote: Kohl’s Corporation uses LIFO, but its LIFO reserve declined year over year - from $4.98 million to zero. This is known as LIFO liquidation or liquidation of LIFO layers, and indicates that during the fiscal year, Kohl’s sold or liquidated inventory that was held at the beginning of the year. When prices are rising, we know that inventory held at the beginning of the year carries a lower cost (because it was purchased in prior years). Cost of goods sold is therefore reduced, sometimes significantly. Generally, in the case of a sharply declining LIFO reserve, we can assume that reported profit margins are upwardly biased to the point of distortion.

NJerseyGuy Wrote: ------------------------------------------------------- > whatz the final answers to those two: > > LIFO liquadation…increase the COGS then reduce > the taxable income?? i put this. Not sure if it’s correct now though. Lower Inv - Higher COGS, Lower Income - Lower tax - higher CF…

what are the a,b,c,d of question 1. I just remembered I choose it is a read flag because increased earning or something

i can’t remember the details, but they had 2 clients that accounted for 2% of revs on year and then 11% of the revs the next, and they had changed something that clearly benefited them (the two clients)…that seemed like the red flag to me…anyone else know what i am talking about? The lifo seemed to bring it in to the same as industry…or am i not remembering the q very well.

MarkvanOmmen Wrote: ------------------------------------------------------- > quote: > > Kohl’s Corporation uses LIFO, but its LIFO reserve > declined year over year - from $4.98 million to > zero. This is known as LIFO liquidation or > liquidation of LIFO layers, and indicates that > during the fiscal year, Kohl’s sold or liquidated > inventory that was held at the beginning of the > year. When prices are rising, we know that > inventory held at the beginning of the year > carries a lower cost (because it was purchased in > prior years). Cost of goods sold is therefore > reduced, sometimes significantly. Generally, in > the case of a sharply declining LIFO reserve, we > can assume that reported profit margins are > upwardly biased to the point of distortion. No problem there. Adjust away. But Kohl’s eliminating their entire LIFO reserve is quite different than Company A deciding to change their inventory strategy to reflect the industry inventory practice. For Kohl’s you adjust and it is a red flag. For Company A you adjust but it isn’t a sign that mgmt is attempting to manipulate earnings, just that they changed to a different inventory strategy…

slouiscar: that was my exact thinking when I read the question. I’m glad someone agrees with me.

I am not exactly the best guy to be agreeing with this morning.