Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

CP7-6 (Static) Making a Decision as a Financial Analyst: Analysis of the Effect of a Change to LIFO LO7 6 A press release for Seneca

image text in transcribed
image text in transcribed
CP7-6 (Static) Making a Decision as a Financial Analyst: Analysis of the Effect of a Change to LIFO LO7 6 A press release for Seneca Foods (licensee of the Libby's brand of canned fruits and vegetables) Included the following Information The current year's net earnings were $8.019,000 or $0.65 per diluted share, compared with $32,067.000 or $263 per diluted share, last year. These results reflect the Company's decision to implement the LIFO (last in, first-out) Inventory valuation method effective December 30, 2007 (fourth quarter). The effect of this change was to reduce annual pretax earnings by $28,165,000 and net earnings by $18,307,000 or $1.50 per share ($1.49 diluted) below that which would have been reported using the Company's previous inventory method. The Company belleves that in this period of significant inflation, the use of the LIFO method better matches current costs with current revenues. This change also results in cash savings of $9.858.000 by reducing the Company's Income taxes, based on statutory rates. If the Company had remained on the FIFO (first.in, first-out) Inventory valuation method, the pretax results, less non-operating gains and losses, would have been an all-time record of $42644,000, up from $40,009,000 in the prior year. As a new financial analyst at a leading Wall Street investment banking firm, you are assigned to outline the effects of the accountir change on Seneca's financial statements. Assume a 35 percent tax rate. Required: 1. Why did management adopt LIFO? 2. By how much did the change affect pretax earnings and ending inventory? Complete this question by entering your answers in the tabs below. Ordi 5 monopol record of $42.644,000, up from $40.009.000 in the prior year As a new financial analyst at a leading Wall Street investment banking firm, you are assigned to outline the effects of the accounting change on Seneca's financial statements. Assume a 35 percent tax rate. Required: 1. Why did management adopt LIFO? 2. By how much did the change affect pretax earnings and ending inventory? Complete this question by entering your answers in the tabs below. Required 1 Required 2 By how much did the change affect pretax earnings and ending Inventory? Pretax earnings Ending inventory

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

New Markets Tax Credit IRS Audit Technique Guide

Authors: Internal Revenue Service

1st Edition

1304112896, 978-1304112897

More Books

Students also viewed these Accounting questions

Question

Have I incorporated my research into my outline effectively?

Answered: 1 week ago