Scotty\'s is a leading snack-food corrpany. The followig note was contained in i

Question

Scotty's is a leading snack-food corrpany. The followig note was contained in its recent annual report: NOTE 4. INVENTORIES Inventories at year-end consisted of the following in thousands) FInlshed gaads Raw materlals Current Year $ 23,882 11,849 Prior Year $21,571 Supplies, etc. 14,558 Total Inventories at FIFO coat 51,543 6,0 5,441 Less: adjustrient to reduce FIFO cwst to LIFO cost Total Inwentorlea $ 45,529 $ 37,873 Required 1. What amount of ending inventory would have been reported in the curent year if Sootty's had used only FIFO? (Enter your answer in thousands.) thousand 2. The cost of goods sold reported by Scot s for the current year was 5530 40B thousand. Determine the cost of goods sold hat ould have been reported if Scoty's had used only FIFO for both years. Enter your answer in thousands.) t of s sold thousand 3. To loer the cash out c ws for taxes, which of the following should the Scot s management choose to use for certain of its Inventor es hen the costs are nsig? LIFO O FIFO OBoth nethods result i the same cash outflow for taxes

Explanation / Answer

Answer 1 :

Inventory that would have been reported in Current year under FIFO is 51543 as is appearing clearing in the note itself.

Answer 2:

Calculating / Deriving Purchases for current year (in '000):

= Closing Inventory (LIFO) + Cost Of Sales - Opening Inventory (LIFO)

= 45529 + 530408 - 37873

= 538064

With the Purchase for current year derived we can evaluate the CoS had FIFO been adopted in both the years by following formula :

Opening Inventory (FIFO) + Current Year Purchases - Closing Inventory (FIFO)

= 43314 + 538064 - 51543

= 529835

Answer 3:

Cost of Sales shall be higher under LIFO hence shall benefit by lower taxes.

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