LIFO Liquidation Lancaster Colony Corporation produces specialty foods under the Marzetti label, candles labeled Candle-lite, and glass

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LIFO Liquidation Lancaster Colony Corporation produces specialty foods under the Marzetti label, candles labeled Candle-lite, and glass called Indiana Glass, as well as other products. The company's 2003 pretax income was $180.8 million. It reported the following inventories: Inventories (in millions) 2003 2002 Finished goods and work in process $116.4 $104.6 Raw materials and supplies 43.0 43.7 Inventories, at LIFO cost 159.4 148.3 Excess of FIFO over LIFO cost Total inventories at FIFO 7.4 $166.8 14.5 $162.8 In 2003 and 2002, inventory quantities were reduced, resulting in liquidations of LIFO inventory quantities carried at the lower costs prevailing in prior years. The effects of these liquidations increased pretax income by $7.1 million in 2003 and $3.3 million in 2002.

1. What would Lancaster Colony's pretax income have been in 2003 if they had purchased enough inventory to avoid liquidating any LIFO inventory layers? 2. What would Lancaster Colony have reported as pretax income for 2003 had they used FIFO to account for all their inventories? 3. How does the change in the LIFO reserve relate to the effect of the LIFO liquidation?

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Introduction To Financial Accounting

ISBN: 0131479725

9th Edition

Authors: Charles T Horngren, John A Elliott

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