ACC 537 Week 2 Textbook Problem P7 4 Bad Debt Reporting( Fortner Corporation)
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.
( d) Why does a company that uses LIFO have extra cash? Explain whether this situation will always exist.
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ACC 537 Week 2 Textbook Problem P7 4 Bad Debt Reporting( Fortner Corporation)
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P7-4( Bad-Debt Reporting) From inception of operations to December 31, 2014, Fortner Corporation provided for uncollectible accounts receivable under the allowance method. Provisions were made monthly at 2 % of credit sales, bad debts written off were charged to the