Basler co has 30000 pounds of steel in its inventory

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Basler Co. has 30,000 pounds of steel in its inventory on December 31, 2012, with cost determined on a specific-goods LIFO approach.
At the end of 2013, only 6,000 pounds of steel remained in inventory.LIFO Liquidation Example Continued
LIFO LiquidationWhen prices rise ...LIFO inventory costs in the balance sheet are “out of date” because they reflect old purchase transactions.If inventory declines, these “out of date” costs may be charged to current earnings.This LIFO liquidation results in “paper profits.”Could this be a source of abuse?
Example 3: LIFO LiquidationThe Reuschel Company began 2011 with inventory of 10,000 units at a cost of $7 per unit. During 2011, 55,000 units were purchased for $8.50 each. Sales for the year totaled 54,000 units leaving 11,000 units on hand at the end of 2011. Reuschel uses a periodic inventory system and the LIFO inventory cost method. Calculate cost of goods sold for 2011.
Example 3: LIFO Liquidation ContinuedThe Reuschel Company began 2011 with inventory of 10,000 units at a cost of $7 per unit. During 2011, 50,000units were purchased for $8.50 each. Sales for the year totaled 54,000 units leaving 6,000units on hand at the end of 2011. Reuschel uses a periodic inventory system and the LIFO inventory cost method. Calculate cost of goods sold for 2011.Cost of goods sold:Units10,00050,00060,0006,00054,000Dollars70,000425,000495,000??
Example 3: LIFO Liquidation ContinuedFrom a financial reporting perspective, what problem is created by the use of LIFO in this situation? Describe the disclosure required to report the effects of this problem.
Decision Makers’ PerspectiveFactors Influencing Method ChoiceHow closely do reported costs reflect actual flow of inventory?How well are costs matched against related revenues?How are income taxes affected by inventory method choice?
MatchingTax Benefits/Improved Cash FlowFuture Earnings HedgeAdvantagesReduced EarningsInventory UnderstatedPhysical FlowInvoluntary Liquidation / Poor Buying HabitsDisadvantagesLIFO
LIFO is generally preferred:1.if selling prices are increasing faster than costs and2.if a company has a fairly constant “base stock.”LIFO is not appropriate:1.if prices tend to lag behind costs, 2.if specific identification traditionally used, and 3.when unit costs tend to decrease as production increases.

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