Question

Excercise 9-12 Converting LIFO to FIFO (LO9-5) KW Steel Corp. uses the LIFO method of inventory valuation. Waretown Steel, KW's major competitor, instead uses the FIFO method. The following are excerpts from each company's 2017 financial statements: Waretown Steel 2017 2016 708.2 $ 688.6 $ ($ in millions) Balance sheet inventories LIFO reserve Sales Cost of Goods sold KW Steel Corp. 2017 2016 $ 797.6 $ 692.7 378.0 334.9 4,284.8 4,029.7 3,427.8 3,226.5 3,584.2 2,724.0 3,355.8 2,617.5 Required: 1. Compute each company's 2017 gross margin percentage and inventory turnover using cost of goods sold as reported by each company. For each ratio, how does KW Steel compare to Waretown Steel? 2. Restate KW's cost of goods sold and inventory balances to the FIFO basis. On the basis of its adjusted data, recompute KW's gross margin percentage and inventory turnover.

EVERYTHING WAS CORRECT EXCEPT THE BLANK ABOVE.

I TRIED 900.1 FOR KW STEEL & 860.2 FOR WARETOWN STEEL BUT THAT WAS INCORRECT AND I HAVE TRIED 3384.7 FOR KW AND 2724 FOR WATERTOWN STEEL WHICH WAS ALSO INCORRECT.

PLEASE HELP AND SHOW WORK FOR ONLY THAT PART!

Answer 1

Requirement 1 :
	KW Steel Corp.	Waretown Steel
Gross Margin percentage	20.00%	24.00%
Inventory Turnover	4.6	3.9
Requirement 2 :
	KW Steel Corp.	Waretown Steel
Cost of goods Sold (FIFO )	$ 3,384.70	$ 2,724.00
Gross margin rate	21%	24%
Inventory Turnover	3.1	3.9

All Explanation is Given Below :

Requirement 1 :
	KW Steel Corp.		Waretown Steel
( $ in millions )	2017	2016	2017	2016
Balance sheet
Inventories	$ 797.60	$ 692.70	$ 708.20	$ 688.60
LIFO Reserve	$ 378.0	$ 334.90
Sales	$ 4,284.80	$ 4,029.70	$ 3,584.20	$ 3,355.80
less: Cost of goods sold	($3,427.80)	($3,226.50 )	($ 2,724.0)	($2,617.50)
Gross Margin	$ 857.0	$ 803.20	$ 860.20	$ 738.30
Gross Margin percentage	20.00%		24.00%
(Gross margin / sales)	($857 / $ 4,284.80)		($860.20/$3,584.20)
Inventory Turnover	4.6		3.9
(cost of goods sold/ average inventory)	($3,427.80/$745.15)		($2,724.0 / $ 698.40)

To calculate the Average inventory for KW Steel Corp. and Waretown Steel :

Average inventory = (Beginning inventory + ending inventory )/2
Average inventory for KW Steel Corp. = ( $ 692.70 + $ 797.60 )/2
Average inventory for KW Steel Corp. = $ 745.15
Average inventory for Waretown Steel = ( $ 688.60+$ 708.20 )/2
Average inventory for Waretown Steel = $ 698.40

Requirement 2 :
	KW Steel Corp.		Waretown Steel
( $ in millions )	2017	2016	2017	2016
Balance sheet
Inventories	$ 797.60	$ 692.70	$ 708.20	$ 688.60
Add: LIFO Reserve	$ 378.0	$ 334.90
Inventories restated to FIFO	$ 1,175.60	$1,027.60
Sales	$ 4,284.80		$ 3,584.20
Cost of Goods sold-LIFO   = $ 3,472.80
Increase in LIFO reserves =   ($ 43.10 )
($ 378 -$ 334.90 )
Less: Cost of Goods sold-FIFO	($ 3,384.70)		($ 2,724.00)
Gross Margin -FIFO	$ 900.10		$ 860.20
Gross Margin rate	21%		24%
(Gross margin / sales)	($ 900.10 / $ 4,284.80)		($ 860.20/$3,584.20)
Inventory Turnover	3.1 ( Rounded)		3.9
(cost of goods sold/ average inventory)	($ 3,384.70/$ 1,101.60)		($2,724.0 / $ 698.40)

To calculate the Average inventory for KW Steel Corp. and Waretown Steel :

Average inventory = (Beginning inventory + ending inventory )/2

Average inventory for KW Steel Corp. = ( $ 1,027.60 + $ 1,175.60 )/2

Average inventory for KW Steel Corp. = $ 1,101.60

Average inventory for Waretown Steel = ( $ 688.60+$ 708.20 )/2

Average inventory for Waretown Steel = $ 698.40