Zenab company uses LIFO method for 70% of its inventory and 30% with FIFO method. Zenab COGS sold is 61300 and LIFO reserve for 2001 is 3600 and 5100 for 2002. Similar company uses 100% FiFO method for its inventory. This company’s COGS is 52000 and its begining inventory is 22300 for year 2001. please calculate the 100% LIFO COGS for Zenab company.
I HATED that question and gave up on it. Doesn’t have a gazillon parts to it? LOL
yeah man. I still could not figure out how to solve since they did not provide the detailed calculation. I am still waiting for the hero who will solve this problem. Thanks
This is a terrible question. I’m assuming that they are looking for something like this: Change in LIFO reserve = 1500 for 70% of the inventory, so for 100% would be 1500/.7 = 2143. Inventory accouting under LIFO in a rising price enviroment (which we know because LIFO reserve increased) would increase COGS, so 2143-1500=643; therefore COGS under 100% LIFO would be 61300+643=61943. I don’t see how “similar company” comes into play here, it’s all useless information. Plus the questions gives all information for 2001 and we are looking at 2002 (I’m assuming) for Zenab so this part of the question is completely pointless. Is all of Zenab’s inventory identical? To solve this question we have to assume it is. If so they would never use 70% FIFO and 30% LIFO, no reason to. Plus we already know IFRS doesn’t allow LIFO so we have to assume GAAP here, and I’m almost positive GAAP prohibits this type of accounting.
Man thank you very much for this. I thought it was a complicated calculation to arrive at 100%. Man you made my life easier. This is just a tiny part of the whole problem. If you want to see it go to CFAI FSA and go to the end of inventory analysis chapter and check out questions #6. Thanks for the answer though
No problem. I didn’t see this question in the text, but still I really don’t think this has any pratical application, different inventory accounting methods for the same inventory just doesn’t happen.
Whodey i would like to know what book did study for FSA since you seem very knowlegable about this stuff. Did you study schweser book or CFAI book? if you do not mind sharing.
I did Stalla, but I’m also a CPA so I already knew a lot of the FSA stuff.
Zenad needs a change in management
Seriously, who are their auditors?
I believe if you read the full text of the question it states that Andersen is…and the lead partner is out of the Houston office.
LOL
On this question, part C., why doesn’t the cash on the balance sheet change because of a change in income tax expense?