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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.
(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 wer e made monthly
at 2% of credit sales, bad debts written off were charged to the