Question

6. Clint Company and Black Company reported the following information in their financial statements, prior to their merger: Smillions 2011 2010 Clint Company (FIFO) Sales $14,250 $9,650 13,750 8,560 Inventories $3,335 4,220 Black Company (LIFO) Sales COGS $22,140 $16,050 23,050 14,200 Inventories $8,450 7,700 To the closest hundredth, how much is the 2011 inventory turnover for Clint Company? A) 2.89 B) 2.41 C) 1.28 D) 2.55 7. Clint Company and Black Company reported the following information in their financial statements, prior to their merger: Clint Company (FIFO) $millions Sales COGS 2011 $14,250 $9,650 2010 13,750 8 ,560 Inventories $3,335 4,220 Black Company (LIFO) Sales COGS $22,140 $16,050 23,050 14,200 Inventories $8,450 7,700 The LIFO reserve for Black Company is $890 at the end of 2011 and $760 at the end of 2010. What is the estimated 2011 inventory turnover assuming FIFO inventory costing for Black Company? A) 1.99 B) 0.90 C) 1.72 D) 1.79

Answer 1

6 D 2.55

Calculation -

average inventory = (opening inventory + closing inventory) / 2

= (4220+3335) / 2 = 3777.5

  Inventory turnover ratio = COGS / (average inventory)

= 9650 / 3777.5 = 2.55

7 D 1.79

Calculation -

Black Company	LIFO reserve	LIFO Inventory	LIFO COGS	Sales
2011	890	8450	16050	22140
2010	760	7700	14200	23050
Conversion to FIFO
	FIFO inventory = LIFO inventory +LIFO reserve
	2011 = 8450+890 =		9340
	2010 = 7700+760 =		8460
	FIFO COGS =	COGS LIFO - increase in LIFO reserve
	2011 = 16050 - (890-760) =		15920
FIFO Inventory turnover ratio = FIFO COGS / average FIFO inventory
	= 15920/ ((9340+8460)/2) =		1.79