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Unformatted text preview: the farthest from current value. LIFO results in the lowest inc taxable income). 4 Explain the lower-of-cost-or-market basis of accounting fo use the lower-of-cost-or-market (LCM) basis when the curren less than cost. Under LCM, companies recognize the loss in t decline occurs. 5 Compute and interpret the inventory turnover ratio. calculated as cost of goods sold divided by average inventory average days in inventory by dividing 365 days by the invent turnover ratio or lower average days in inventory suggests tha keep inventory levels low relative to its sales level. 6 Describe the LIFO reserve and explain its importance for different companies. The LIFO reserve represents the differe inventory using LIFO and ending inventory if FIFO were emp companies this difference can be significant, and ignoring it c conclusions when using the current ratio or inventory turnove...
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- Spring '11