What was the change in LIFO reserve for Cornwell Quality Tools in 2022?
Cornwell_Quality_Tools Franchise · 2025 FDDAnswer from 2025 FDD Document
| 2022 | 2021 | |
|---|---|---|
| Raw materials | $ 5,882,360 | $ 6,198,060 |
| Work in process | 3,503,205 | 3,427,525 |
| Finished goods | 40,537,244 | 29,744,156 |
| 49,922,809 | 39,369,741 | |
| Less: Obsolescence reserve | 392,256 | 280,000 |
| $ 49,530,553 | $ 39,089,741 |
The income tax effect has been provided on the increase/decrease in inventory value at the statutory federal and state tax rates. The tax effect deferred tax assets by $2,459,000 in 2022 and $1,774,000 in 2021. The tax effect increased the provision for income taxes by $685,000 in 2022 and $387,000 in 2021.
The Company uses
Source: Item 23 — RECEIPT (FDD pages 101–373)
What This Means (2025 FDD)
Based on the 2025 Franchise Disclosure Document, Cornwell Quality Tools uses the LIFO (last-in, first-out) method for its historical consolidated financial statements. The document indicates that the income tax effect related to the increase or decrease in inventory value resulted in deferred tax assets of $2,459,000 in 2022 and increased the provision for income taxes by $685,000 in 2022.
In simpler terms, the LIFO method impacts how Cornwell Quality Tools values its inventory for accounting purposes. The tax effect on the change in inventory value resulted in a deferred tax asset of $2,459,000 and an increased provision for income taxes of $685,000 for Cornwell Quality Tools in 2022.
For a potential franchisee, understanding Cornwell Quality Tools's accounting practices, including inventory valuation methods like LIFO, is important for assessing the company's financial health. The tax implications related to inventory can affect the company's profitability and cash flow, which indirectly impacts the franchise system.
Prospective franchisees might want to inquire further about how inventory valuation methods could affect their individual franchise operations and financial reporting, although this FDD excerpt focuses on the consolidated financials.