Dear Friends, I have series of questions. I’d really appreciate your help. Book 3 - P.54 I was trying to compare LIFO/FIFO and under the inventory section, fourth paragraph, Schweser explained that LIFO is popular in US as selling the last purchased items results in higher COGS and hence lower income taxes. In short, Why is LIFO popular in US? Is it because following LIFO method is the best way to avoid carrying costs? Book 3 - P. 67 - Example 1 In Step 1 when calculating the basic EPS, why did they subtract 10,000. I am assuming thats a pay out for example dividend but I’m confused of how they got that number. Book 3 - P. 79 (Question) & 83 (Answer) How did they allocate the new Stock and Bond Weights and most importantly why is the combined weight 12? Thank you in advance!
Book 3 - P. 67 - Example 1 10000 = Preferred Dividend. Basic EPS considers what is payable to the Common stock holder. So Preferred dividend of any kind is deducted. Page 79: Q 15 Note that combined weight is not 12. It is the # of months of the year for which the shares are active. All shares below are in terms of 1000s. 1/1 # of Shares = 100 * 1.1 * 12/12 5/1 Issued = 30 * 1.1 * 8/12 7/1 10% stock dividend. (applies retrospectively) So total # of shares = 110 + 22 = 132 Diluted 132 + 1 * 4/12 * 21 = 139 CP
To answer your first question (Pg 54) - In the US, LIFO is popular in an INFLATIONARY environment bc the goods that came in last have higher COGS which lead to lower income & lower taxes. So LIFO is simply popular in inflationary periods bc companies pay less income taxes.