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Using LIFO to Value the Inventory

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MVP Corp uses LIFO to value its inventory. The 2010 inventory records disclose the following:

Beginning Inventory Units Cost
First Layer 10000 $15
Second Layer 22000 $18
Purchases 250,000 $20

At December 26, 2010 the company had a special, nonrecurring opportunity to purchase 40,000 units at $17 per unit. The purchase can be made and the units will be delivered on December 30, or it can be delayed until the first week of January 2011. The company plans to make the purchase due to the obvious cost savings involved. Sales for 2010 totaled 45,000 units.

Please take one of the following positions.

Position 1 - Describe the financial statement effects of making the purchase in 2010 as opposed to 2011. Argue for making the purchase in 2010. Defend the use of LIFO. Use the matching concept in your defense.

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Solution Summary

The solution uses LIFO to value the inventory. It also describes the financial statement effects and defends the use of the LIFO.

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