Question

LO2E6-29. Reformulating Balance Sheet and Income Statement Items for LIFO to FIFO ADJUSTMENTS 6.1 PHILLIPS 66 In its December 2016 10-K, Phillips 66 reported the following information ($ millions). (PSX) 2016 Assets 2016 Inventories 2016 LIFO Reserve 2016 Increase in LIFO Reserve Tax Rate $51,653 $3,150 $3,300 $2,000 35% a. Determine the necessary adjustments to the following balance sheet line items. i. Inventories ii. Total assets iii. Tax liabilities iv. Equity b. Determine the necessary adjustments to the following income statement line items. i. Cost of goods sold ii. Pretax income iii. Income tax expense iv. Net Income c. Compute the common-size inventories with LIFO and with FIFO. (Hint: Compute inventory as per- cent of total assets.) Do we believe the difference is material? Explain. E6-30. Calculating Inventory Ratios for LIFO versus FIFO ADJUSTMENTS 6.1 Refer to the information for Phillips 66 in E6-29 along with the following information ($ millions). LO2,3 PHILLIPS 66 (PSX) 2015 Assets 2016 Revenue 2015 Inventories 2016 Cost of Goods Sold 2016 Net Income $48,580 $70,898 $3,477 $67,050 $1,644 a. Recast inventories and cost of goods sold using FIFO for 2016. b. Compute the following ratios for 2016, under both LIFO and FIFO. Comment on whether they differ materially. i. Gross margin percentage ii. Days inventory outstanding (DIO) iii. Return on assets (ROA)

Answer 1

Answer a) Determine the necessary adiuitmente to the following balance sheet line items. ( Inventories cender FIFO Method. - $3,150+ $3,300 (Inventory + Lifo Receive = $6,450 (i) Total Assets = $51,653+ $3,300 (Total assetstlifo Resive, - $ 54,953 90') Tat liabilities Net Income for 2016 - $1,644 Net Income under flfo = $1,6 heke+ $2000 (1-359.) = $1,616+ $1300 - $2,944 Tax liabilities $2944* 351 65 = $1,585 (in Earuity * Net income increased by $1300 the carity will be increased by $1300.

b. Determine the necesary adjustmene DD following income stalement line items. 9 cost of Goode soldi = $ 67,050 - $2000 (cast of Goods sold - Increase in Lifo Reserve) a $ 65,050 6) Pre tax Income: $29 whe Net Income under FIFO method & (calculated above (9) Pe tax Income = $29, 00% 65% - $4,529 (ory $4,529 Income tax expense ! Pre tax income = Net Income Income tax a $2944 a $1,585 Expense (iv) Net Income & calulated in a (o) – $2944.

c. inventories compute the common size with Zifo and with Alfo. Total Accell - $ 51,653 ander zifo Inventory unda LIFO - $ 3,150 Percentage - 6.10.%. Total Assell unde Flfo - $54,953 - $6450 Inventory undel flfo - 11.74% Percentage the difference is material ů reasured to be disclosed in the financial statements. and it properly

a. Recast inventaries and cost of goods sold wing FIFO for 2016. Inventorin $ $ $150 + $ 3,300 under FIFO $ 6,450 Cast of Goode sold = $ 67,050 - $2000 under FIFO & $65,050 for 2016 unda ratios b. Complete the LIFO and following flfo. © Gross Margin percentage. Total Revenue a cost of Goodes Toral Revenu sold x 100 LIFO FIFO $70,898 Total $70,898 Revenue cost of $67050 $65050 Goods Sold Income $5,848 $3,848 Gross 5.43./. Margin % 8,25%

(1) gays inventory outstanding colo) Average inventory x 365 Days. Cost of Goode sold & I closing T inventory Inventor nu entory Average LIFO flfo $3,477 $3,477 opening Inventory closing Inventory $6,450 $3150 $4,964 $3,314 $65,050 $ 67,050 Average inventory cost of Goods sold Ways inventory outstanding 28 days 18 days $4,96be 7365) $3,314365 ($67,050" $65,050 ( Return on Assets & Net Income x100 Average total Asseld Alet Income Average Elfo $1,644 $50, 117 Elfo $2944 $51,767 ( $48,580 + $54,953) 5.69.6. total Assets $48,580+ $ 51,653) Return on Assels - 3:28