Gable, Inc., is a provider of home furnishings. The company uses the FIFO inventory method. The following information was taken from the company’s recent financial statements (dollar amounts are in thousands):
The financial statements also revealed that had Gable been using LIFO,its cost of goods sold would have been $1,865,000. The company’s income taxes and payments amount to approximately 40 percent of income before taxes.
- Explain how LIFO can result in a higher cost of goods sold. Would you expect LIFO to result in a greater or lesser valuation of the company’s ending inventories? Defend your answer.
- Assuming that Lollar had been using LIFO, compute the following amounts for the current year. Show your supporting computations, with dollar amounts in thousands.
- Income before taxes
- Income taxes expense (which are assumed equal to income taxes actually paid)
- Net income
- Net cash provided by operating activities
A) Problem 8.4A Debit Cost of Goods Sold $1,560 (part a, LIFO method).
B) Problem 8.4BDebit Cost of Goods Sold $120 (part a, LIFO method).