Robots, Inc. reported the following information regarding 2019?2020 inventory.

Instructions

a. Comment on why Robots, Inc., might disclose how its LIFO inventories would be valued under FIFO.

b. Why does the LIFO liquidation reduce operating costs?

c. Comment on whether Robots, Inc. would report more or less income if it had been on a FIFO basis for all its inventory.

Transcribed Image Text:

Robots, Inc. 2020 2019 Current assets $ 153,010 $ 538,489 Cash Accounts receivable, net of allowance for doubtful accounts of $46,000 in 2020 and $160,000 in 2019 1,627,980 2,596,291 Inventories (Note 2) 1,340,494 1,734,873 Other current assets 90,592 123,388 Assets of discontinued operations 32,815 Total current assets 3,244,872 4,993,060 Notes to Consolidated Financial Statements Note 1 (in part): Nature of Business and Significant Accounting Policies Inventories-Inventories are stated at the lower-of-cost-or-market. Cost is determined by the last-in, first-out (LIFO) method. Note 2: Inventories Inventories consist of the following. 2020 2019 Raw materials $1,264,646 $2,321,178 Work in process Finished goods and display units 240,988 171,222 129,406 711,252 1,635,040 294,546 Total inventories 3,203,652 Less: Amount classified as long-term 1,468,779 Current portion $1,340,494 $1,734,873 Inventories are stated at the lower of cost determined by the LIFO method or market for Robots, Inc. If the FIFO method had been used for the entire consolidated group, inventories after an adjust- ment to the lower-of-cost-or-market would have been approximately $2,000,000 and $3,800,000 at October 31, 2020 and 2019, respectively. Inventory has been written down to estimated net realizable value, and results of operations for 2020, 2019, and 2018 include a corresponding charge of approximately $868,000, $960,000, and $273,000, respectively, which represents the excess of LIFO cost over market. Inventory of $294,546 and $1,468,779 at October 31, 2020 and 2019, respectively, shown on the balance sheet as a noncurrent asset represents that portion of the inventory that is not expected to be sold currently. Reduction in inventory quantities during the years ended October 31, 2020, 2019, and 2018 resulted in liquidation of LIFO inventory quantities carried at a lower cost prevailing in prior years as compared with the cost of fiscal 2017 purchases. The effect of these reductions was to decrease the net loss by approximately $24,000, $157,000, and $90,000 at October 31, 2020, 2019, and 2018, respectively.