Reference no: EM131121525
Gable Inc is a provider of home furnishings. The company uses the FIFO inventory method. The following information was taken from the companyAc€?cs recent financial statements (dollar amounts are in thousands).
COGS 1,850,000
income before taxes 125,000
income taxes expenses (and payments) 52,500
net income $72,500
net cash provided by operating activities 123,250
The financial statements also revealed that had Gable been using LIFO, its cost of goods sold would have been $1,865,000. The companyAc€?cs income taxes and payments amount to approximately 40 percent of income before taxes.
Explain how LIFO can result in a high cost of goods sold. Would you expect LIFO to result in a greater or lesser valuation of the companyAc€?cs ending inventories? Defend you answer.
Using the LIFO method typically does result in a higher cost of goods sold due to the nature of the method. The last item entering the inventory is sold first, so during periods of inflation this method will show ending inventory on the balance sheet at a much lower cost than what it truly is which results in a lower net income all due to the higher cost of goods sold being reported. This would indicate the method results in a lesser valuation of the companyAc€?cs ending inventories.
Assuming that Lollar had been using LIFO, compute the following amounts for the current year. Show your supporting computations, with dollar amounts in thousands.
Income before taxes
Income taxes expense (which are assumed equal to income taxes actually paid)
Net income
Net cash provided by operating activities
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: Gable Inc is a provider of home furnishings. The company uses the FIFO inventory method. The following information was taken from the companyAc€?cs recent financial statements (dollar amounts are in thousands).
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