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Analyzing and Interpreting Inventories and Its Related Ratios and Disclosures Inventories Effective December 3 0 , 2 0 0 7 ( beginning of 4 th
Analyzing and Interpreting Inventories and Its Related Ratios and Disclosures Inventories
Effective December beginning of th quarter of Fiscal Year the Company changed its inventory valuation method from the lower of cost determined under the FIFO method, or market to the
lower of cost determined under the LIFO method, or market. In the high inflation environment that the Company was experiencing, the Company believed that the LIFO inventory method was preferable over
the FIFO method because it better compares the cost of current production to current revenue. The effect of LIFO was to increase continuing net earnings by $ million in and to reduce net earnings by
$ million in compared to what would have been reported using the FIFO inventory method. The increase in earnings per share was $ $ diluted in ; and a reduction in earnings per share
of $ $ diluted in There were LIFO liquidations of $ million in and $ million in Most of this LIFO liquidation in is reported as Discontinued Operations since it related to the
Modesto fruit. The inventories by category and the impact of using the LIFO method are shown in the following table:
In prior financial statements, Cicero has stated that it "manages the Company for cash, not reported earnings" and that the "decision to switch to LIFO has turned out to be a very prudent one of the last five
years."
a Compute the ratio of inventories to total current assets for and The inventory turnover rate has
from to due more to :
rather than an
c What inventory costing method does the Company use? What effect has the use of this method relative to FIFO or LIFO had on its reported income for and Was the result an increase or
decrease? Explain.
Cicero uses
inventory costing method.
tableThe effect was tcnet earnings by $million in and to million in relative to if the firm had used
d Cicero claims that it manages its company for cash flow. Does its inventory reporting help the Company to do so How much in taxes has the Company saved, assuming a tax rentery
approach it adopted?
The Company's use of
has led to a
of its taxes as indicated by the $
million amount in the
reserve.
The Company's cash savings from its inventory reporting method is $
million
The current asset section from Cicero Cibi Corporation the Company a lowcost producer and distributor of quality fruits and vegetables, March annual report follows:
Cicero reports the following related to its gross profit:
Cicero further reports the following disclosure note:
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