The Wall Street Journal reported that Chevron Corp. took a change in 2015 of $1.96 billion, related
Question:
The Wall Street Journal reported that “Chevron Corp. took a change in 2015 of $1.96 billion, related to lower prices for crude oil and refined products. The article characterized the write-down as an accounting ‘to reduce the carrying value of crude oil and refined products inventories to their market value.’”
REQUIRED:
a. What exception to the principles of financial accounting is being followed by Chevron when it writes down its inventories?
b. How would the write-down affect the financial statements?
c. How would the write-down affect the company’s current ratio and its inventory turnover ratio (increase, decrease, or no effect)?
d. Explain how such a write-down could be used to manipulate earnings and what two reporting strategies Chevron could be following.
e. If crude oil prices rebounded the following year, explain how Chevron, which uses U.S. GAAP, would account for the rebound. What if Chevron used IFRS instead of U.S. GAAP?
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,...
Step by Step Answer:
a Chevron is using the lower of cost or market exception to the historical cost principle that is ap...View the full answer
