Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Analyzing Effects of LIFO on Inventory Turnover Ratios The current assets of Exxon Mobil Corporation follow: In addition, the following note was provided in its

Analyzing Effects of LIFO on Inventory Turnover Ratios
The current assets of Exxon Mobil Corporation follow:
In addition, the following note was provided in its Year 310-K report:
Inventories. Crude oil, products and merchandise inventories are carried at the lower of current market value or cost (generally determined under the last-in,
first-out method-LIFO). Inventory costs include expenditures and other charges (including depreciation) directly and indirectly incurred in bringing the inventory
to its existing condition and location. Selling expenses and general and administrative expenses are reported as period costs and excluded from inventory cost.
Inventories of materials and supplies are valued at cost or less.
In Year 3, Year 2, and Year 1, net income included losses of $10 million, $295 million and $186 million, respectively, attributable to the combined effects of LIFO
inventory accumulations and drawdowns. The aggregate replacement cost of inventories was estimated to exceed their LIFO carrying values by $10.8 billion and
$8.1 billion at December 31, Year 3 and Year 2 respectively.
Required:
a. Exxon Mobil reported pretax earnings of $18,674 million in Year 3. What amount of pretax earnings would have been reported by the company if inventory
had been reported using the FIFO costing method?
$ million
b. Exxon Mobil reported cost of goods sold of $128,217 million in Year 3. Compute its inventory turnover ratio for Year 3 using total inventories.
(Round your answer to one decimal place.)
c. BP, p.I.c.(BP) reports its financial information using IFRS. For fiscal Year 3, BP reported cost of goods sold of $179,716 million, beginning inventory of $17,655
million and ending inventory of $19,011 million. Compute BP's inventory turnover ratio for fiscal Year 3.(Round your answer to one decimal place.)
d. Compare your answers in parts b and c. BP can't use LIFO to report under IFRS, so, revise your calculations in such a way as to find out which company has
faster inventory turnover. (Hint: Calculate Exxon Mobil's inventory turnover ratio as if Exxon Mobil used the FIFO costing method.)(Round your answer to one
decimal place.)
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Auditing And Assurance Services

Authors: David Ricchiute

5th Edition

0538869526, 978-0538869522

More Books

Students also viewed these Accounting questions

Question

How will these issues affect the grade levels you will teach?

Answered: 1 week ago

Question

Why is repatriation orientation and training needed?

Answered: 1 week ago