a. Toyoza's inventories were costed using the LIFO method and that Lincoln Enterprises employed the FIFO method. Provide the adjusting journal entries to restate Toyoza's inventories to a FIFO basis, assuming that ending inventories would have been Y160 million higher under the FIFO method and,

b. Toyoza's purchased goodwill is amortized over 20 years. The current period's amortization expense is Y12 million for the year and is included under other operating expenses. Under a U.S. GAAP impairments test, it would have been 20% of that amount.

Required:

1. Re-do the ratio analysis based on the adjusted data and explain your calculating result.

2. Suppose you are an analyst for Toyoza Enterprises, based on the information in Appendix 9-1 and the above ratio analysis (you may assume some other reasonable SWOT conditions), you are required to do a WOTS-UP anaylsis for Toyoza Enterprises.

EXHIBIT 9-14 Year-End Unadjusted Financial Statements and Related Notes Toyoza Enterprises (Thousands) Lincoln Enterprises ($Thousands) 1,400,000 $12,000 1,120,000 100,000 114,200 10,044 575 319 10 $ 1,052 65,800 130 Income Statements Sales Operating expenses: Cost of sales Selling and administrative Other operating Goodwill amortization Operating income Gains (losses) Interest expenses Income before taxes Income taxes Income after taxes Equity in earnings of unconsolidated subsidiaries Net income Balance Sheets Cash Accounts receivable, net Marketable securities Inventory Investments Plant and equipment, net 28,000 37,800 23,800 14,000 922 258 664 116 14,000 $ 780 124,500 510,000 45,000 390,000 150,000 280,600 $ 1,920 1,660 500 1,680 1,000 5,160 EXHIBIT 9-14 Year-End Unadjusted Financial Statements and Related Notes (Continued) Toyoza Enterprises (Thousands) Lincoln Enterprises ($Thousands) 80 $12,000 $ 1,800 2,160 1,500,000 V 165,000 525,000 Goodwill Total assets Short-term payables Short-term debt Deferred taxes Other current liabilities Long-term debt Reserves Capital stock Retained earnings Total liabilities and owners' equity 2,400 90,000 520,000 90,000 75,000 35,000 1,500,000 960 4,680 $12,000 Notes to Toyoza's Financial Statements: 1. The balance sheet and income statement were prepared in accordance with the Japanese Commercial Code and related regulations. 2. Investments in subsidiaries and affiliated companies are accounted for using the equity method. 3. Inventories are stated at average cost. Ending inventories restated to a FIFO basis would have been 198 million higher. 4. Plant and equipment are carried at cost. Depreciation, with minor exceptions, is computed by the sum-of-the-years-digits method. Plant and equipment, purchased 2 years ago, have an estimated life of 4 years. 5. Operating expenses include lease rental payments of Y40 million. The average term of the lease contracts is 4 years. All leases transfer ownership to the lessor at the end of the least term. Lincoln Enterprises' cost of capital is estimated to be 8 percent. 6. A translation gain of Y20 million relating to consolidation of foreign operations with a net monetary liability position is being deferred under long-term debt. 7. Purchased goodwill is amortized over 20 years. The current period's amortization expense is 12 million for the year and is included under other operating expenses. Under a U.S. GAAP impairments test, it would have been 10% of that amount. 8. Toyoza Enterprises is allowed to set up special-purpose reserves (ie., government-sanctioned charges against earnings) equal to a certain percentage of total export revenues. This year's charge (including other operating expenses) was 426,400,000. Similarly, this year's addition to Toyoza's general-purpose reserves was Y30,800,000. 9. The Y/$ exchange rate at year-end was 110 = $1. 10. Toyoza Enterprise's marginal income tax rate is 35 percent. Notes to Lincoln Enterprises' financial statements: 1. The balance sheet and income statement are based on U.S. GAAP. 2. Inventories are carried at FIFO cost. 3. Plant and equipment are depreciated in straight-line fashion 4. Foreign operations are consolidated with those of the parent using the temporal method of currency translation as Lincoln adopts the U.S. dollar as its functional currency