represents collections on account for which cash discounts of $360
were given.
2. January cash disbursements recorded in the December check
register liquidated accounts payable of $22,450 on which discounts of
$250 were taken.
3. The ledger has not been closed for 2014.
4. The amount shown as inventory was determined by physical count
on December 31, 2014. The company uses the periodic method of
inventory.
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ACC 537 Week 2 E8-21 LIFO Effect
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E8-21 (LIFO Effect) The following example was provided to
encourage the use of the LIFO method. In a nutshell, LIFO subtracts
inflation from inventory costs, deducts it from taxable income, and
records it in a LIFO reserve account on the books. The LIFO benefit
grows as inflation widens the gap between current-year and past-year
(minus inflation) inventory costs. This gap is
(a) Explain what is meant by the LIFO reserve account.
(b) How does LIFO subtract inflation from inventory costs?
(c) Explain how the cash flow of $174,400 in this example was
computed. Explain why this amount may not be correct.