...1. Suppose that some application requires using two stacks whose elements are of the same type. A natural storage structure of such a two-stack data type would consist of two arrays and two top pointers. Explain why this may not be a space wise efficient implementation. A stack is a last in first out (LIFO) data type. A stack can be implemented using arrays where the data is stored in continuous memory locations. We have two operations in a stack push and pop. Since it has continuous memory allocated, if we try inserting data it gets saved in that free space present in either of the stacks. This is not a space wise efficient implementation because data is stored statically. In this case one stack can be full while the other is empty. 2. Using the basic queue and stack operations, write an algorithm to reverse the elements in a queue. Create an empty stack While the queue is not empty Remove a value from the queue and push it onto the stack While the stack is not empty Pop a value from the stack and add it to the queue. 3. Assume that 'Stack' is the class described in this section with 'StackType' set to into and STACK_CAPACITY or myCapacity set to 5. Give the value of 'myTop' and the contents of the array referred to by 'myArray' in the Stack s afer the code segment is executed, or indicate why an error occurs. Stack s; s.push(1); s.push(2); s.push(3); s.pop(); s.push(4); s.push(5); s.pop(); s.pop(); In a stack it is last...
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...LIFO to be accepted as costing method? I. Introduction In the United States, the SEC is expected to eventually mandate the adoption of International Financial Reporting Standards (IFRS). U.S. standards setters have been working toward this eventuality through a process of convergence. The SEC issued a statement in early 2010 that updated its timeline and indicated that companies could be required to adopt IFRS as early as 2015 (see SEC, "Commission Statement in Support of Convergence and Global Accounting Standards," Release Nos. 33-9109; 34-61578, February 24, 2010, at www.sec.gov/nles/other/2010/33-9109.pdf). The SEC plans to revisit the issue this year. The general consensus suggests, however, that under IFRS, the last-in, first-out (LIFO) inventory valuation method will no longer be permitted for financial or tax reporting. The adoption of IFRS is a contentious issue for companies currently using LIFO as an inventory valuation method. In order to claim the tax benefits of LIFO, companies must also present financial statements using the same method, as required by the conformity rule (IRC section 472 [c]). LIFO is not permitted under IFRS, which means U.S. companies must switch from LIFO to first-in, first-out (FIFO) or average cost upon adoption of IFRS. Although only a small subset of U.S. companies currently uses LIFO for at least some of their operations, a change in inventory valuation method can have a significant impact on reported income, inventory balances, tax...
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...Impact of LIFO Accounting When discussing IFRS vs. GAAP regarding inventory, LIFO Accounting is one of the most controversial topics. Although LIFO is hardly used globally, it is heavily used in the United States. A shift from LIFO would have a significant effect on US companies specifically because tax law requires any company that uses LIFO for tax purposes to also use it for book accounting according to Internal Revenue Code (IRC) §472(c). Since IFRS disallows LIFO Accounting, US companies will either be in non-compliance with US tax code or accounting standards according to IFRS. By disallowing LIFO Accounting, US companies will not only have larger tax liabilities because of accelerated income recognition but they must also account for a change in inventory methods (Bloom & Cenker, 2009). GAAP provides guidance under Statement 154- Accounting Changes and Errors Corrections which states when a change in inventory method occurs; the company must retrospectively apply the change to prior financial statements presented in effected annual reports. Only if change is unfeasible can the company apply the new principle prospectively. When an inventory method change is made, the company can deduct the change for tax purposes. According to IRC §481(a), the company can deduct the entire change in the year of the change if the change is favorable to the entity. However if they change is unfavorable, the company can apply the change of a period of four years starting with the...
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...dig into their retained earnings. The below takes a look at possible opportunities that Summit has to improve their balance sheet, this would ensure that they are within the guidelines of their covenants. 1. If you were Kathy Hutton, what would you do? Due to the fragile nature of Summit Distributors business, we would agree with Dave Flander’s suggestion of going from LIFO to FIFO. There are a few negatives and positives with this decision. First, violating any of the loan covenants would alert the bank, and any future dealing with them would incur a 50 basis point increase on the lending rate (.50%). Also because of the switch older equipment would sit in storage for a longer period of time, thus forcing Summit to eventually sell it at a discount or depreciate it towards the base value only to have it collect dust. The reason for this is that the nature of the industry requires for our firm to have a variety of warehouses located in different locations with the newest equipment, in order to be competitive in the market. Due to the economic decline, fewer of our products will be purchased from us, and we can assume that no one would want to buy an older piece of equipment with such a fragmented industry offering many substitute options. So what Kathy Hutton should do is the following and some positive benefits: a. Switch over to a...
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...about the initiative to wipe out the LIFO inventory technique seems that is not a piece of cake. Actually is so controversial that is putting companies, which are using LIFO in real problems. Some of the reason that companies had been using LIFO is because the benefits of paying less tax and also for book purposes. What I think about the three options of eliminate LIFO either for financial accounting or tax purposes, or not allowing it for financial accounting purposes but allowing it for tax purposes by removing the conformity requirement or allowing it for financial reporting and tax purposes by conforming IFRS to US standards in some way my response is “Eliminate LIFO”. So, Last-in-first-out (LIFO) is an inventory accounting technique which allocates the most recent inventory prices to cost of goods sold and the oldest inventory prices to items remaining in the inventory. In a period of increasing prices, this assumption assigns the recent and higher prices to cost of goods sold and the older lower prices to inventory. LIFO can have a significant cumulative downward effect on the inventory’s value. The cost of goods sold for any particular year equals the sum of beginning inventory, plus purchases, less ending inventory. Thus, a lower ending inventory increases cost of goods sold and reduces taxable income. Under current tax law, companies are allowed to use LIFO for tax purposes only if it also uses LIFO for financial reporting purposes. LIFO inventories means that the last...
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...Readiness Series The uncertain future of LIFO* The uncertain future of LIFO This paper was authored by Christine Turgeon, a partner; Scott Rabinowitz, a director; Helen Poplock, a director; and Sean Pheils, a senior associate with PricewaterhouseCoopers’ Washington National Tax Services (WNTS) practice. For over 70 years, US taxpayers have been able to value the cost of their inventories using the last-in, first-out inventory method of accounting (LIFO). In general, to use LIFO for federal income tax purposes, taxpayers must also use LIFO for financial reporting purposes (herein referred to as the LIFO conformity requirement). The use of LIFO for financial reporting purposes is not permitted under International Financial Reporting Standards as promulgated by the International Accounting Standards Board (IFRS). As a result, a conversion from US generally accepted accounting principles (GAAP) to IFRS likely will eliminate a taxpayer’s ability to use LIFO for federal income tax purposes. Moreover, the fact that LIFO is not permissible under IFRS has led many policymakers to debate whether LIFO should be permitted for tax purposes, irrespective of IFRS conversion. As a result, Congress and the Obama Administration are considering a repeal of LIFO, while taxpayers and practitioners are defending the merits of LIFO as sound tax policy and are seeking an administrative exception to the LIFO conformity requirement. The transition from LIFO to an alternate inventory method will have...
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...1. Arguments for and against LFO abolition in the US a) What are the arguments in favour of retaining LIFO? The arguments are being made on a number of different grounds so be clear to separate these out. b) What are the arguments in favour of the US abolishing LIFO? c) Should decisions on matters such as this be made on the basis of what is the most appropriate from an accounting perspective (i.e. principles) or from the perspective of the impact of the decision on the real economy (i.e. profits, jobs, growth)? d) Decide which of these two arguments you support on balance and justify your choice. a. What are the arguments in favour of retaining LIFO? The arguments are beint made on a number of different grounds so be clear to separate these out. Some business community in favour of retaining LIFO. Especially manufacturers, oil and gas companies, and other business that carry large inventories. Their taxes could increase a lot if they could no longer use LIFO. LIFO is particularly important to companies that have slow-moving inventory – such as industrial manufacturers and distributors – and are therefore vulnerable to rising prices. LIFO accounting is a “timing issue”, rather than a tax gimmick. LIFO accounting reverses itself when demand drops. When companies reach lower-cost inventory layers last year as demand solwed, and at that point, profits rose under LIFO accounting and the company had to pay more in taxes. The same is true when deflation...
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...4. In considering the rules based approach of GAAP and the principles based approach of IFRS we looked at GAAP first. GAAP provides application clarity, low risk, and for companies in the same industry there is easy comparability. These Rules, however, must be accounted for using these rules even if the information is misleading, uneasy to compare across industries and the risk increases when rules are not followed. IFRS allows us to consider best out of multiple ways to account for transactions, comparibility among companies across multiple industries, and it is easier to defend actions and positions by using the principles that were followed. That being said, we believe that the IFRS approach is needed over the US approach. We believe that the rules are put into place by the US approach and companies then take the steps necessary to get around them. We believe that principles should be used and there should be required disclosures to guide investors and shareholders and help them understand the principles that were used and the decisions made that were based on these principles. There is still need for solid framework for larger key issues, but we feel as though principles are the right way to go. To deal with inconsistencies, there would still be a few concrete rules laid out to govern however principles will be still be used. Lessees and Lessors will also be required to show equal and opposite assets and liabilities on their balance sheets for every and all lease without...
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...AN EXAMINATION OF INVENTORY COSTING CONVERGENCE UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS Casey Reineking Department of Accounting Murray State University Murray, KY 42071-3314 E-mail: casey.reineking@hotmail.com Don H. Chamberlain Department of Accounting Murray State University Murray, KY 42071-3314 Holly R. Rudolph Department of Accounting Murray State University Murray, KY 42071-3314 L. Murphy Smith* Department of Accounting Murray State University 351 Business Building Murray, KY 42071-3314 Tel: 270-809-4297 Email: msmith93@murraystate.edu *Corresponding author Forthcoming in Journal of International Business Research AN EXAMINATION OF INVENTORY COSTING CONVERGENCE UNDER GENERALLY ACCEPTED ACCOUNTING PRINCIPLES AND INTERNATIONAL FINANCIAL REPORTING STANDARDS ABSTRACT Accounting principles in the United States are converging toward international standards. If convergence continues, and there are proponents and detractors, then the U.S. system of accounting, called Generally Accepted Accounting Principles (GAAP), will eventually be replaced by International Financial Reporting Standards (IFRS). Convergence has profound implications for publicly traded companies and their many stakeholders such as investors, lenders, government agencies, and employees. A key issue facing accounting standard-setters is the treatment of inventory costing, an area in which GAAP and IFRS differ. This study addresses three...
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...inventory measured using the LIFO method, which is using last-in, first-out. They also decided on excluding the retail inventory methods. The Board also requires inventory to be measured at net realizable value and at the lower of cost. They believe that the result will cause a reporting entity to not be required to consider replacement costs. There will not be additional disclosures required in the periods after the amendments. The amendments will be applied in the annual reporting periods after December 15th, 2016 with interim reporting periods starting after December 15th, 2017. If LIFO is used for tax purposes, it must also be used for financial reporting of a company. This can cause trouble for certain companies. When prices rise, companies using LIFO minimize their tax liability, but the companies minimize their net income as well, in turn causing failure of the companies to meet the minimum level of profitability under a loan or meet what analysts have forecasted for the company. LIFO is also not used in a good portion of foreign jurisdictions. This limits the ability to expand abroad for companies valuing inventory using LIFO. If a company chose to expand internationally, they would have to keep two sets of inventory records; one for US tax law and domestic financial reporting and one for international reporting. Keeping two separate reports can become expensive for the company to maintain. With the decision of FASB excluding LIFO, CPAs will more than likely...
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...margin on Kobe originated equipment. In 1984, Harnischfeger changed its accounting policy on depreciation. Previously before the corporation used an accelerated method for its US plants. The new policy employs a straight-line method for its plants, machinery, and equipment. 2.) In effect this policy shift retroactively resulted in an increase $11 million in net income or $0.93 per common and common equivalent share. Profits will improve. 3.) Also these changes resulted in the change of the depreciation lives on US plants, machinery and equipment. This had an effect on the residual values on certain machinery and equipment that increased net income for 1984 by $3.2 million or $0.27 per share. No income tax effect was applied to the change. Harnischfeger fixed assets useful life will increase as such profits will improve. 4.) The reduction in sales and the underutilization of plants, machinery, and equipment would have a prolonged effect on the assets useful life. 5.) The effect of LIFO inventory liquidation on its reported profits in 1984 are an increase in net income by $2.4 million or $0.20 per common share and a reduction in the net loss by $15.6 million. If a company performs LIFO liquidation, the old costs will be matched with the current higher sales prices. A company uses LIFO liquidation assuming that when it needs to replace inventory its repurchasing cost will increase. 6.) 1984 – 0.0673 or 6.73% 1983 – 0.1004 or 10.04%, the doubtful accounts...
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...for valuation of inventories in 1930 by the Supreme Court. This was after issues with many companies seeing LIFO as the most accurate way to valuate their inventories, which caused many law suites and lead to the final decision by the Supreme Courts. Due to people such as George R. Husband who saw LIFO as a “manipulation of income rather than ‘truth’,” it was difficult for companies to prove that the method should be recognized for its advantages to stockholders. There is also the issue that LIFO can be used to lower taxes substantially and that fact alone made many very suspicious of businesses wish to implement the acceptance of LIFO. Though there are many opposing the use of this method, there are many reasons it should be accepted. The “Conformity Rule” was developed as a constraint for LIFO after much debate and demand, so that companies could be regulated. Basically it requires companies to use LIFO across all of its financials so that they are not just using the method to lower their taxes. So instead of just using it for valuation of inventory, it is also used to calculate net income. Though many were fighting very hard to keep LIFO out of GAAP, others were having a very different argument and that’s how LIFO came into use. LIFO had the former SEC Chairman on its side which seemed to have an effect on its credibility. Though Husband looked at users of LIFO as manipulators of their financial statements, Harold Williams saw it as the most accurate and proper way to...
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...less than it would have been in Nashua. In 2008 due to the economic development production & logistics cost were rising in china which affected Merrimack Tractors and Mowers Inc. These trends were in direct contrast to competitors which still retained material in US manufacturing which was less affected by the increased in cost in Asia. The income of Merrimack of 2008 was below that of 2007 and earlier years and there was a pressure on Rick Martino to keep earning growing. Company's controller had idea to maintain the trend in income growth by changing the method of accounting for inventories of Tractors, mowers and parts. The controller suggested Rick to change the accounting method from LIFO to FIFO which would report to higher income figure in 2008 which subsequently would increase the taxes payable. Inference: After comparing income statements of year 2008 based on LIFO and FIFO methods we can observe a drastic impact it had on NET INCOME. NETINCOME is positive when FIFO method is used and negative when LIFO is used. • As per Colburn’s report,...
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...Solution of the Case: a) If a company uses LIFO, the value of closing stock will be lesser than the value calculated under FIFO method and the closing stock will be lesser in LIFO due to the higher cost of sales which in turn would result in lesser gross profit. This is transferred to Profit & Loss Account/Income Statement/Statement of Financial Performance which in turn would result in lesser net profit & high tax savings as tax would be levied on lesser Net Profit. Here Golf Challenge Corp. can use FIFO method to comply with the loan financing requirements and also because in FIFO method Net profit margin & current ratio would be higher as compared to LIFO method. LIFO usually produces higher cost of goods sold than does FIFO because more recently purchased goods (usually higher priced) are assumed sold first. Net Profit Margin= Net Profit after Tax (In FIFO Net profit would be more due to value in Sales Revenue higher closing stock which result in higher net profit, For publicly traded companies on the S& P 500, the Average net profit margin is 8.5 percent) Current Ratio=Current Assets (Higher Closing stock value is included in current assets, Current Liabilities generally ratio should be higher than 1.33:1 as per Industry ...
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...of information manipulation and influence. In section one and section two respectively I will talk about differences in cost flow assumptions and inventory valuation under both methods. I. COST FLOW ASSUMPTIONS Companies typically purchase merchandise at several different prices. Ending inventory equals the quantity on hand multiply the unit acquisition price. If a company use historical cost to determine the cost of inventory and it purchases inventory at different unit prices, it needs to make an arbitrary choice as to the assumed unit price, because a specific identification of the given items sold and unsold proves both expensive and impossible to achieve. Three major assumptions are First-in, first-out (FIFO), last-in, first-out (LIFO) and weighted average cost. Although the attribute being calculated is historical cost in all methods, the result is arbitrary...
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