A Company Provided the Following Footnote in Its Most Recent

question 100

Short Answer

A company provided the following footnote in its most recent annual report:
During the current and prior year,the company reduced certain inventory quantities that were valued at lower LIFO costs prevailing in prior years.The effect of these physical reductions was to increase after tax earnings this year by $90 million,$.30 per share,and $98 million,or $.327 per share last year.
1.Explain why the reduction in inventory quantity increased after tax earnings for this company.
2.If the company had been using FIFO costing,would the reductions in inventory quantity during the two years have increased after tax earnings? Explain.

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Definitions:

Basic Business Transactions

Fundamental economic exchanges that occur in business, such as buying, selling, and trading goods or services, which constitute the core activities of any commercial entity.

Data Collection

The process of gathering and measuring information on targeted variables in an established systematic fashion, enabling one to answer relevant questions and evaluate outcomes.

DBS

May refer to Database Systems, which are software applications designed to manage, manipulate, and query structured data stored in databases.

Knowledge Worker

An individual whose main capital is knowledge, typically engaged in the task of solving complex problems, generating ideas, or developing new information or products.