Question

Why does fifo have a higher earnings per share than LIFO ? And why does fifo...

Why does fifo have a higher earnings per share than LIFO ? And why does fifo have a higher ROA than lifo. How is debt to equity affected using fifo and lifo ? Please use numbers in the equations so it’s easier for me to grasp thank you !
Business   Accounting   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

FIFO have higher earnings as compared to LIFO because LIFO assigns latest cost of goods purchased and such cost is higher than the cost of goods (Due to inflation effect)previously purchase by the entity.Lets take example for clarity.

Particulars Under LIFO Under FIFO

Sales 5,00,000 5,00,000

Less: Cost of Goods sold (5550kgs) 3,20,250 2,87,750

Gross Margin 1,79,750 2,12,250

Purchase-dt1/04/2017-(3500Kgs @$50)

Purchase-dt01/11/2017-(3750Kgs @$55)

Purchase-dt1/02/2018-(3000Kgs @$60)

Under LIFO-COGS-5550Kgs

3000Kgs @$60=180000

2550Kgs @$55=140250

320250

Under FIFO-COGS-5550Kgs

3500Kgs @$50=175000

2050Kgs @$55=112750

287750

Debt to equity ratio=No effect on Debt Equity if we change from LIFO to FIFO.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Just wondering if someone can clarify why the ROA ratio will be higher under the LIFO...
Just wondering if someone can clarify why the ROA ratio will be higher under the LIFO inventory accounting method in comparison with the FIFO inventory accounting method. I understand that under LIFO (in the case of rising prices) COGS will be higher which will reduce net income, but the ending inventory and thus total assets will also be lower. I am assuming that the reduced affect on net income from using LIFO as opposed to FIFO will be less than...
Suppose I value an company at $20 per share by using analyst-consensus forecasts of earnings per...
Suppose I value an company at $20 per share by using analyst-consensus forecasts of earnings per share and dividends per share for the next three years, and the company's current common shareholder's equity. I assume a cost of equity of 8% and terminal growth rate of 6% in my valuation. The market price is $40. list and explain four different things might have caused me to obtain a different valuation than the market.
You expect that Bean Enterprises will have earnings per share of $2 for the coming year....
You expect that Bean Enterprises will have earnings per share of $2 for the coming year. Bean plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If Bean?s equity cost of capital is 10%, then...
Questrom Corp will have earnings per share of $60 this year and expect that they will...
Questrom Corp will have earnings per share of $60 this year and expect that they will pay out $15 of these earnings to shareholders in the form of a dividend. Questrom’s stock is currently trading for $125.00 and their equity cost of capital is 20%. What return must the company be earning on its new investments? Can someone show me step by step how you arrived at 10.67% ?
Halliford Corporation expects to have earnings this coming year of $ 2.831 per share. Halliford plans...
Halliford Corporation expects to have earnings this coming year of $ 2.831 per share. Halliford plans to retain all of its earnings for the next two years.​ Then, for the subsequent two​ years, the firm will retain 52 % of its earnings. It will retain 21 % of its earnings from that point onward. Each​ year, retained earnings will be invested in new projects with an expected return of 27.6 % per year. Any earnings that are not retained will...
The impact of financial leverage on return on equity and earnings per share Consider the following...
The impact of financial leverage on return on equity and earnings per share Consider the following case of Free Spirit Industries Inc.: Suppose Free Spirit Industries Inc. is considering a project that will require $200,000 in assets. • The company is small, so it is exempt from the interest deduction limitation under the new tax law. • The project is expected to produce earnings before interest and taxes (EBIT) of $45,000. • Common equity outstanding will be 10,000 shares. •...
Analyzing Inventory Disclosure Comparing LIFO and FIFO The current asset section of the 2014 and 2013...
Analyzing Inventory Disclosure Comparing LIFO and FIFO The current asset section of the 2014 and 2013 fiscal year end balance sheets of The Kroger Co. are presented in the accompanying table: $ millions January 31, 2015 February 1, 2014 Current assets Cash and temporary cash investments $188 $825 Deposits in-transit 786 666 Receivables 949 845 FIFO inventory 6,297 5,793 LIFO credit (1,083) (827) Prepaid and other current assets 288 319 Total current assets $7,425 $7,621 In addition, Kroger provides the...
6. You expect that MotorRotor ltd. will have earnings per share of $2 for the coming...
6. You expect that MotorRotor ltd. will have earnings per share of $2 for the coming year. MotorRotor plans to retain all of its earnings for the next three years. For the subsequent two years, the firm plans on retaining 50% of its earnings. It will then retain only 25% of its earnings from that point forward. Retained earnings will be invested in projects with an expected return of 20% per year. If MotorRotor’s equity cost of capital is 12%,...
Why does a bond discount have a higher interest interest expense than a bond premium
Why does a bond discount have a higher interest interest expense than a bond premium
Crane Sporting Goods expect to have earnings per share of $6 in the coming year. Rather...
Crane Sporting Goods expect to have earnings per share of $6 in the coming year. Rather than reinvest these earnings and grow, the firm plans to pay out all of its earnings as a dividend. With the expectation of zero growth in dividend, the firm's current share price is $60. Suppose the firm plans to cut its dividend payout rate to 75% for the forseeable future and use the retained earnings to open new stores. The return on equity for...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT