Assume that a firm separately determined inventory under...

Assume that a firm separately determined inventory under FIFO and LIFO and then compared the results. a. In each dropdown that follows, select the correct sign [less than (<), greater than (>), or equal (=)] for each comparison, assuming periods of rising prices. 1. FIFO inventory < LIFO inventory 2. FIFO cost of goods sold > LIFO cost of goods sold 3. FIFO net income > LIFO net income 4. FIFO income taxes > LIFO income taxes b. Why would management prefer to use LIFO over FIFO in periods of rising prices? Income shown on the company's tax return would be higher if LIFO rather than FIFO is used. Income shown on the company's tax return would be higher if LIFO rather than FIFO is used. Cost of goods sold shown on the company's income statement would be lower if LIFO rather than FIFO is used. Dividends shown on the company's financial statements would be higher if LIFO rather than FIFO is used.

Transcript

00:01 Hello, let's start with part a.

00:05 Here we need to put, we need to select the correct assign less or greater than or maybe equal for each comparison.

00:18 So let's start with the first comparison for inventory.

00:23 In all cases we compare fifo, fifo and lifo.

00:31 So fifo means first in first out and leifo is the opposite method it's last in last out so for the first one fifo assets produced or acquired first are sold used or disposed of first so in our case if we buy assets we sell them first so first bought assets are first sold.

01:20 For lifo last in first out we have an opposite case.

01:27 Assets are produced or acquired last they are sold first and is given that prices are rising.

01:41 So in the first case for inventory inventory of fifo should be greater because for fifo inventory much be more expensive because the less expensive assets are already sold.

02:08 They are bought first this cheapest assets and they are also sold first.

02:19 So inventory is more expensive.

02:29 Next part is costs of goods salt and here we have the opposite case.

02:40 For fifo, costs of goods are cheaper because we use older assets.

02:57 Bought earlier that's why they are cheaper so here we have the cheaper goods of cheaper cost of goods and the third the third part is net income so for nest net income is basically here we compare the difference between sales and cost of goods so sales is the same as since cost of goods is all less for fifo, net income will be greater.

03:40 Because cost of goods sold is less than for fifo.

03:53 And lastly, income taxes.

03:56 Income taxes, they depend on net income.

03:59 If net income is greater, net income is greater for fifo.

04:06 Of course, income taxes will be also greater.

04:12 Okay, this is the part a and there is also part b.

04:18 Why would management prefer to use lifo over fifo in periods of rising prices? and now let's look to the all ansfer options.

04:30 Let's start with ansfer a...