# Then cogs gafs minus ending inventory 7 34lauren

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Chapter 23 / Exercise 012
Intermediate Financial Management
Brigham/Daves
Expert Verified
Then, COGS = GAFS minus Ending Inventory7-34Lauren Company ExampleCalculating LIFO COGS in a Periodic SystemCalculation - LIFO Cost of Goods SoldDate (recent past)Units SoldUnit CostCOGSNov 22 (current year)2003.70740Aug 12 (current year)8703.503,045Feb 6 (current year)1,4003.204,480Dec 5 (prior year)1303.104032,6008,668Inventory Reconciliation (Average Cost)Beginning inventory1,470Purchases made during the year8,265Goods available for sale9,735Cost of Goods Sold8,668Ending inventory1,067
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Chapter 23 / Exercise 012
Intermediate Financial Management
Brigham/Daves
Expert Verified
187-35Lauren Company ExampleComparing COGS under all three MethodsWhen inventory costs are rising:LIFOreports highest COGS and lowest inventory valuesFIFOreports lowest COGS and highest inventory valuesCOGS and inventory values under Average Cost are somewhere between LIFO and FIFO.When inventory costs are rising:LIFOreports lowest net incomeFIFOreports highest net incomeNet income under Average Cost is somewhere between LIFO and FIFO.UnitTotalSalesTotalUnitsCostCostUnitsPriceRevenueOct 1 - PY1803.00540Mar 125004.102,050Dec 5 - PY3003.10930Jun 91,1004.204,620Feb 6 - CY1,4003.204,480Aug 213004.501,350Aug 12 - CY8703.503,045Nov 226004.502,700Nov 22 - CY2003.70740Dec 181004.804802,9509,735Totals2,60011,200Sales Revenue11,20011,20011,200Cost of Goods Sold:Beginning Inventory1,4701,4701,470Purchases8,2658,2658,265Cost of Goods Available9,7359,7359,735Less: Ending Inventory1,1551,2651,067Cost of Goods Sold8,5808,4708,668Gross Profit2,6202,7302,532Goods Available for SaleSales RevenuePrepare a partial income statement (through gross profit) under the weighted average, FIFO, and LIFO cost methods.Weighted AvgLIFOFIFO7-36What Inventory Method should a Company Choose?The company must decide what is important:Show higher net income?Many public companies are concerned with reporting higher amounts of net income (and therefore adopt FIFO)Pay lower taxes?Many privately-held companies are usually more concerned with paying lower taxes (and thus adopt LIFO when it is favorable) than reporting higher earnings.Caution: LIFO is not allowed by IFRS.The U.S.A. has the only accounting system that allows LIFO.If the U.S. adopted IFRS without changing any tax laws, many companies that currently use LIFO would owe significant taxes
197-37LIFO Conformity RuleLIFO conformity ruleCompanies that use FIFO or Weighted Average methods can use different methods for financial reporting and tax purposesCompanies that use LIFO for tax purposes must use LIFO for financial reporting purposes tooReason for LIFO conformity ruleIf this rule did not exist, most companies would choose FIFO for financial statement purposes (to show higher net income) and LIFO for tax purposes (to have lower taxable income).So if a Company wants to report lower taxes, it must also report lower net income in their financial statements.