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Chapter 8: Q6BE (page 422)
Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of goods sold using the LIFO method.
The ending inventory on April 30 was $4,800 and the cost of goods sold amounts to$7,050.
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Midori Company had ending inventory at end-of-year prices of \(100,000 at December 31, 2016; \)119,900 at December 31, 2017; and $134,560 at December 31, 2018. The year-end price indexes were 100 at 12/31/16, 110 at 12/31/17,and 116 at 12/31/18. Compute the ending inventory for Midori Company for 2016 through 2018 using the dollar-valueLIFO method.
Ford Motor Co. is considering alternate methods of accounting for the cash discounts it takes when paying suppliers promptly. One method suggested was to report these discounts as financial income when payments are made. Comment on the propriety of this approach.
Case 3: The Kroger Company
The Kroger Company reported the following data in its annual report (in millions).
January 31, February 1, February 2,
2015 2014 2013
Net sales \(108,465 \)98,375 $96,619
Cost of sales (using LIFO) 85,512 78,138 76,726
Year-end inventories using FIFO 6,933 6,801 6,244
Year-end inventories using LIFO 5,688 5,651 5,146
Instructions
(a) Compute Kroger’s inventory turnovers for fiscal years ending January 31, 2015, and February 1, 2014, using:
(1) Cost of sales and LIFO inventory.
(2) Cost of sales and FIFO inventory.
(b) Some firms calculate inventory turnover using sales rather than cost of goods sold in the numerator. Calculate Kroger’s fiscal years ending January 31, 2015, and February 1, 2014, turnover, using:
(1) Sales and LIFO inventory.
(2) Sales and FIFO inventory.
(c) State which method you would choose to evaluate Kroger’s performance. Justify your choice.
What is the difference between a perpetual inventory and a physical inventory? If a company maintains a perpetual inventory, should its physical inventory at any date be equal to the amount indicated by the perpetual inventory records? Why?
Question:Johnny Football Shop began operations on January 2, 2017. The following stock record card for footballs was taken from the records at the end of the year.
Units Unit Invoice Gross Invoice
Date Voucher Terms Received Cost Amount
1/15 10624 Net 30 50 \(20 \)1,000
3/15 11437 1/5, net 30 65 16 1,040
6/20 21332 1/10, net 30 90 15 1,350
9/12 27644 1/10, net 30 84 12 1,008
11/24 31269 1/10, net 30 76 11 836
Totals 365 $5,234
A physical inventory on December 31, 2017, reveals that 100 footballs were in stock. The bookkeeper informs you that all thediscounts were taken. Assume that Johnny Football Shop uses the invoice price less discount for recording purchases.
Instructions
(a) Compute the December 31, 2017, inventory using the FIFO method.
(b) Compute the 2017 cost of goods sold using the LIFO method.
(c) What method would you recommend to the owner to minimize income taxes in 2017, using the inventory informationfor footballs as a guide?
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