Part of the solution to question 7 at the end of Reading 15 reads :
$3,120 million – 13 million – (55 million – 72 million)
= $3,124 million
But the 13 million is already part of the change in LIFO reserve (55 million – 72 million). We know this because the question states ‘the valuation allowance is reduced to reflect the valuation allowance attached to items sold and increased for additional necessary write-downs.’
Therefore the solution should read $3,120 – (55 – 72) = 3,137 million. Otherwise the 13 million is being double-counted.
Or am i misreading?
There is definitely an inconsitency earlier in the chapter:
In example 1, the solution to question 2 uses ending inventory in the inventory turnover ratio. In contrast, the opening section of the book and the solution to question 7 at the end of reading 15 both use average inventory.
$3,120 million – 13 million – (55 million – 72 million)
= $3,124 million
But the 13 million is already part of the change in LIFO reserve (55 million – 72 million). We know this because the question states ‘the valuation allowance is reduced to reflect the valuation allowance attached to items sold and increased for additional necessary write-downs.’
Therefore the solution should read $3,120 – (55 – 72) = 3,137 million. Otherwise the 13 million is being double-counted.
Or am i misreading?
There is definitely an inconsitency earlier in the chapter:
In example 1, the solution to question 2 uses ending inventory in the inventory turnover ratio. In contrast, the opening section of the book and the solution to question 7 at the end of reading 15 both use average inventory.