Analyzing Inventories with Quarterly Data and LIFO Liquidation The inventory footnote from The Dow Chemical Company's first quarter 2019 SEC report follows. The company also reports cost of goods sold for Q1 of 2019 of $11,778 million. Inventories, in millions Finished goods Work in process Raw materials Supplies Mar. 31, 2019 Dec. 31, 2018 $5,703 $5,640 2,239 2.214 940 941 891 $9,773 880 $9,675 Total Adjustment of inventories to a LIFO basis Total inventories (292) $9,508 (415) $9,260 Required a. What inventory costing method does Dow Chemical use? LIFO As of Q1 of 2019, what is the effect on cumulative pretax income and cash flow of using this inventory costing method, assuming a 30% average cumulative tax rate. Note: Do not use any negative signs with your answers. Effect on pretax income (in millions): $ 0 Reduction Effect on cash flows (in millions): $ 0 Increase What is the effect on Q1 of 2019 pretax income and cash flow of using this inventory costing method, assuming a 21% tax rate? Note: Do not use any negative signs with your answers. Effect on pretax income (in millions): $ 0 Increase Effect on cash flows (in millions): $ 0 Reduction - b. Compute inventory turnover and average inventory days outstanding for Q1 of 2019. (Hint: How do we adjust the ratio for the number of days in a quarter instead of a year?) Note: Do not round until your final answer; round your final answer to one decimal place (for example, enter 6.8 for 6.77555). Inventory turnover 0 times Average inventory days 0 days C. Determine the FIFO values for inventories and cost of goods sold for Q1 of 2019. Recompute inventory turnover and DIO. FIFO inventories $ 0 FIFO CGS $ 0 Note: Do not round until your final answer; round your final answer to one decimal place (for example, enter 6.8 for 6.77555). Inventory turnover 0 times Average inventory days 0 days d. Which set of ratios would provide more useful analysis? FIFO - Analyzing Inventories with Quarterly Data and LIFO Liquidation The inventory footnote from The Dow Chemical Company's first quarter 2019 SEC report follows. The company also reports cost of goods sold for Q1 of 2019 of $11,778 million. Inventories, in millions Finished goods Work in process Raw materials Supplies Mar. 31, 2019 Dec. 31, 2018 $5,703 $5,640 2,239 2.214 940 941 891 $9,773 880 $9,675 Total Adjustment of inventories to a LIFO basis Total inventories (292) $9,508 (415) $9,260 Required a. What inventory costing method does Dow Chemical use? LIFO As of Q1 of 2019, what is the effect on cumulative pretax income and cash flow of using this inventory costing method, assuming a 30% average cumulative tax rate. Note: Do not use any negative signs with your answers. Effect on pretax income (in millions): $ 0 Reduction Effect on cash flows (in millions): $ 0 Increase What is the effect on Q1 of 2019 pretax income and cash flow of using this inventory costing method, assuming a 21% tax rate? Note: Do not use any negative signs with your answers. Effect on pretax income (in millions): $ 0 Increase Effect on cash flows (in millions): $ 0 Reduction - b. Compute inventory turnover and average inventory days outstanding for Q1 of 2019. (Hint: How do we adjust the ratio for the number of days in a quarter instead of a year?) Note: Do not round until your final answer; round your final answer to one decimal place (for example, enter 6.8 for 6.77555). Inventory turnover 0 times Average inventory days 0 days C. Determine the FIFO values for inventories and cost of goods sold for Q1 of 2019. Recompute inventory turnover and DIO. FIFO inventories $ 0 FIFO CGS $ 0 Note: Do not round until your final answer; round your final answer to one decimal place (for example, enter 6.8 for 6.77555). Inventory turnover 0 times Average inventory days 0 days d. Which set of ratios would provide more useful analysis? FIFO
