Response to Target Post, accounting homework help

Response to Target Post, accounting homework help

Try to attempt to take the conversation further by examining their claims or arguments in more depth or responding to the posts that they make to you. Keep the discussion on target and try to analyze things in as much detail as you can. 6 sentences or more.

From Internet research, I picked the company “Target.” Target uses Last-in First-out method for stating inventory cost. The advantages of LIFO: The LIFO method gives a better picture of earning by matching most recent costs against current revenues. The LIFO lowers profit margin since the product was purchased at a different price. Second, since the company using LIFO it will give a tax benefit, as the current purchase price is higher (assuming current price is high). Third, because of Last-in-first-out method, in future if the market drops the retail price company does not have to write-downs to market in future due to decline in prices. Now disadvantages of LIFO: Since company using LIFO, they show less earnings, and this could affect negatively on investors which could lead investors to sell their stock leading stock price go down. Second, at the end of the year in balance statement “end of inventory” price will be understated since the left inventory will be priced old cost. Third, a company can manipulate their earnings by changing the purchase pattern at the end of the year (Unknown, n.d. page 28).

I believe Last-in-first-out method does not provide accurate earnings. Assuming merchandise prices are gradually going up practically income statement contains less earnings.

Advantages and disadvantages are retrieved from the following site.

References

Unknown, (n. d.). Advantages and disadvantages of last-in, first-out (LIFO) method. Retrieved from: http://www.accountingformanagement.org/advantages-…