FIFO versus LIFO Comparisons
Wal-Mart uses LIFO to account for its inventories. Recent financial statements were used tocompile the following information (dollar figures are in millions):
Average inventory (throughout the year) | $ 33,835 |
Current assets (at year-end) | 48,949 |
Current liabilities (at year-end) | 55,390 |
Net sales | 401,244 |
Cost of goods sold | 306,158 |
Gross profit | 95,086 |
Average time required to collect outstanding receivables (approximate) | 10 days |
lnstructions
a. Using the information provided, compute the following measures based upon the LIFOmethod:
1. Inventory turnover.
2. Current ratio (see Chapter 5 for a discussion of this ratio).
3. Gross profit rate (see Chapter 6 for a discussion of this statistic).
b. Assuming cost of goods sold would be lower under FIFO, what circumstances must the company have encountered to cause this situation? (Were replacement costs, on average, rising or falling?)
c. How would you expect these ratios to differ (i.e., what direction) had the company used FIFO instead of LIFO?
d. Explain why the average number of days required by Walmart to collect its accounts receivable is so low. (See Chapter 7 for a discussion of the accounts receivable turnover rate.)
We need at least 10 more requests to produce the solution.
0 / 10 have requested this problem solution
The more requests, the faster the answer.