The year-end balances in a company’s LIFO reserve
The year-end balances in a company’s LIFO reserve are $56.8 million in the company’s financial statements for both 2007 and 2008. For 2008, the measure that will most likely be the same regardless of whether the company uses the LIFO or FIFO inventory method is the:
A. inventory turnover.
B. gross profit margin.
C. amount of working capital.
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2024-11-01 15:20:59
Ans:B.
The LIFO reserve did not change from 2007 to 2008. Without a change in the LIFO reserve, cost of goods sold would be the same under both methods. Sales are always the same for both; so gross profit margin would be the same in 2008.
A is incorrect. The FIFO inventory would be higher because the LIFO inventory and LIFO reserve are added to compute FIFO inventory.
FIFO inventory = LIFO inventory + LIFO reserve
Because the inventory balances would be different under FIFO, inventory turnover (COGS/ Ave. inventory) would also be different under FIFO.
C is incorrect.
Working capital= CA-CL
Because the FIFO inventory would be higher, the amount of working capital under FIFO would also be higher.
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