CFA Practice Question

There are 520 practice questions for this study session.

CFA Practice Question

Lang Specialty Golf Inc. maintains its inventory using LIFO costing. Data for the year is as follows:

Beginning inventory: $900
Beginning LIFO reserve: $600
Ending inventory: $850
Ending LIFO reserve: $650
Reported cost of goods sold: $8,800
Pre-tax LIFO liquidation effect: $200

Which of the following represents the correct LIFO-adjusted inventory turnover?
A. 6.0 times
B. 5.87 times
C. The amount cannot be determined from the information given.
Explanation: The correct computation is $8,800 COGS + $200 LIFO liquidation/($ 900 Beginning inventory + $600 Beginning LIFO reserve + $850 Ending inventory + $650 Ending LIFO reserve)/2 = $ 9,000/$1,500 = 6.0 times.

User Contributed Comments 10

User Comment
shasha ending LIFO reserve is greater than its beginning, should be no LIFO liquidation happened, ie. the $8,800 COGS reflects the current cost, why under such a situation, we still need to add LIFO liquidation effect back to the COGS?
humphrey LIFO liquidation leads to lower reported COGS than without liquidation, so should be added back... but why is it not added back to the ending reserve in calculating average FIFO inventory?
humphrey LIFO adjusted turn over is LIFO COGS/ FIFO inventory
araggl Current cost = LIFO COGS / FIFO inventory is the best measure. The question is maybe not clearly asking for it, but it is the correct measure.
shasha you guys repeated a known principle which was not answer to my question, sorry. anyway, I referred to the text book and understood that a increasing LIFO reserve doesn't mean no LIFO liquidation effect. If interesting, you may go to text book pp282, Ex.6-9. The book will give you much clearer concept than anyone doew.
mtcfa araggl has a good explanation. The formula for LIFO adjusted INV to = LIFO COGS + liquidations/Average FIFO COGS
migena araggl excellent explanation for such a tricky formulated question!!
Nando1 The text book isn't very clear on this, but it appears the LIFO liquidation effect is stated in the financial notes to let readers know the difference b/w FIFO and LIFO. This is why it has to be added to COGS to get LIFO adjusted COGS.
Hishy Doesnt Change in LIFO Reserve = End LIFO Reserve - Beg. LIFO Reserve?
Scc0813 Shouldn't the change in LIFO reserve be included in the calculation of COGS under FIFO?
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