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 .
===================================================
ACC 537 Week 2 Textbook Problem P7 4 Bad Debt Reporting ( Fortner Corporation )
FOR MORE CLASSES VISIT www . acc537study . com
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