Question

5

What is Wilson's fxed 8599 a. 1.60 b. 2.50 0.25 d. 0.50 (05-7) Karp Inc. disclosed: "If the FIFO (first-in, first-out) method had been in use, inventories would have been $155 million, $117 million higher than reported on December 31, 2009 and 2008 respectively. Karp's balance sheet shows inventories of $620 million and $539 million at December 31, 2009 and 2008, respectively Karp's income statement shows Cost of Goods Sold of $2,211 million and $2,147 million for the years ending December 31, 2009 and 2008, respectively, Net incor is $247 million in 2009 and $192 million in 2008. Karp's effective tax rates were approximately 20% for 2009 and earlier periods. 5. If Karp had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2009 would have been closest to: a. $357 million. b. $465 million. c. $658 million. d. $775 million.

Answer 1

There are various inventory valuation methods used in accounting, among them most popular are FIFO, LIFO, and Average method. FIFO method assumes that inventory purchased first are used first, so in the inventory consists of only latest purchased inventory. And if the inflation are there FIFO method produces higher inventory value than LIFO.

Since in the present case Karp is using inventory method other than FIFO, and if FIFO were employed, its Inventory value for 2009 would have been higher by $155 million than its present reported inventory of $620 million in 2009.

So for 2009, using FIFO inventory would be $620+$155 = $775 million Option D is correct