Hi All, I am not able to understand the solution: Beginning LIFO reserve is 50,000 Ending LIFO reserve is 60,000 How do we adjust end of period equity… Solution: To adjust end of period owner’s equity - don’t consider tax on the retained earnings… Any ideas… Thanks in advance…
For BS analysis FIFO method of inventory valuation is preferred. If the CO had used the Lifo then we need to add lifo reserve to inventory. Also, we need to lifo reserve to equity(retained earnings) to match increase in inventory(assets). The question would be about BS ratios. Ignore tax for analysing impact on BS ratios due to change in inventory method. Hope this helps.
Thanks for replying… I have seen some website say that equity should inc by (1-tax rate) * LIFO reserve and liability by tax * LIFO reserve… I am confused…