acc 205 week 3 dq
Week 3 - DQs
1. LIFO vs. FIFO
The controller of Sagehen Enterprises believes that the company should switch from the LIFO method to the FIFO method. The controller’s bonus is based on the next income. It is the controller’s belief that the switch in inventory methods would increase the net income of the company. What are the differences between the LIFO and FIFO methods?
Analyze several of your peers’ posts. Let at least two of your peers know if a company is better off it switches from a LIFO method to a FIFO method? Explain your reasoning.
Image two gallons of milk bought by a company and sold one to a customer. However, the prices are different for each of them. The purchases will be $ 2.61, for one milk on 3rd January and $ 3.11, for one milk on 7th January. For the sale of one mile, the COGS will be:
| |LIFO |FIFO |Average Cost |
|COGS |$2.61 |$3.11 |$2.86 |
Is a Company better off, if it switches from a LIFO Method to a FIFO method?
Since FIFO is a more natural straight-line approach, therefore, it is more commonly used by the companies. The company accounts for the first inventory in as the first items sold. The inventory items can be easily tracked through FIFO methods. Without permission of IRS, the company cannot change to FIFO for several years if it has been using a LIFO valuation approach. In LIFO method, a bigger discrepancy between the cost basis of initial inventory and current market prices is caused and the company needs to work back toward earlier inventory received as more inventories are sold by it. The LIFO method makes it more difficult to interpret accurately the inventory activities and current operating activities of the company.
A variety of depreciation methods are used to allocate the cost of an asset to all of the accounting periods benefited by the use of the asset. Your client has just purchased a piece of equipment for $100,000. Explain the concept of depreciation. Which of the following depreciation methods would you recommend: straight-line depreciation, double declining balance method, or an alternative method?
Let at least two of your peers know if a company would use an accelerated depreciation method for their financial statements or their tax returns. Why do you believe this would be the case?
The Concept of Depreciation
The concept of depreciation is studied in accounting is in context...