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5. Which of the following is true regarding the use of LIFO for inventory valuation? A) If LIFO is used for external financial reporting, then it must also be used for internal reports. B) For purposes of external financial reporting, LIFO may not be used with the lower of cost or market approach. C) IF LIFO is used for external financial reporting, then it cannot be used for tax purposes. None of these answers are correct. 6. Morgan Manufacturing Company has the following account balances at year endi Office supplies $ 4,000 Raw materials 27,000 Work-in-process 59,000 Finished goods 97.000 Prepaid insurance 6,000 What amount should Morgan report as inventories in its balance sheet? A) $97,000. B) $101,000. C) $183,000. D) $187,000. 7. Hudson, Inc. is a calendar-year corporation. Its financial statements for the years 2021 and 2020 contained errors as follows: 2021 2020 $9,000 overstated $24.000 overstated Ending inventory Depreciation expense S6,000 understated $18,000 overstated Assume that the proper correcting entries were made at December 31, 2020. By how much will 2021 income before taxes be overstated or understated? A) $3,000 understated B) $3,000 overstated C) $6,000 overstated D) $15,000 overstated

Answer 1

Question 5 Option (D) - None of the Answers are correct Lifo Will be used in the external financial reporting Because the cost of goods sold will be higher in lifo that results in lesser income which will be better for lower taxes Question 6 Option [C] is Correct - $183000 Amount Should Report as Inventories in Balance sheet Inventories : Raw Materials $ 27,000.00 Work in progress $ 59,000.00 Finished Goods $ 97,000.00 $ 183,000.00 Question 7 Option (A) is Correct - $3000 Understated i.e., $18000 - ($9000+$6000) = $3000 Note: Effect of errors in the ending inventories will reverse in following year