more inventory

The beginning LIFO reserve = 50k, ending Lifo reserve = 60k, The firm’s tax rate 40% To adjust end of period owner’s equity in order to calculate debt-to-equity ratio, an analyst should a) make no adjustment b) add 10k c) add 36k d) add 60k Kamp sell specialized bicycle shoes. At year-end due to sudden increase in manufactoring costs, the replacement costs per pair of shoes is $55. The historical cost is $43 and the current selling price is $50. The normal profit margin is 10% of the selling price and the selling cost is $3. at what amount should each pair be reocrded in year-end balanced sheet a) 42 b) 43 c) 47 d) 50 please explain the second question, and if you know what pg can i read about it in the CFA text.

Pepp, for the second question should be B? I guess you will register at lower market cost… not sure

For the first one, at a LIFO-to-FIFO adjustment, the reserve goes: (1-tax rate)*LIFO Reserve to Retained Earnings, Lifo Reserve*Tax rate to DTL Sice FIFO should be used for BS, adjust Ending equity by 0.6*60=36, add 36, that would be C. For the second: Inventory is evaluated at lower of cost or market. Cost: 43 Market:50*0.9-3=42, it should be A. Is it?


getterdone, so are you saying that uncle Sam’s IRS gets nothing off of that sweet reserve?:slight_smile:

no the lifo reserve is like getting paid “under the table” what uncle sam (or the CRA) doesn’t know won’t hurt him :wink:

For the second question, What if replacement cost had gone down to $40 instead of $55? please explain

lower of cost or market, i would say $40 but I get confused on these. It could be $42 could someone verify?

yeah both these questions are tricky, answers are D and B

Could you please drop the explanations for these answers too?