Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Analyzing Inventories with Quarterly Data and LIFO Liquidation The inventory footnote from The Dow Chemical Companys first quarter 2019 SEC report follows. The company also

Analyzing Inventories with Quarterly Data and LIFO Liquidation The inventory footnote from The Dow Chemical Companys first quarter 2019 SEC report follows. The company also reports cost of goods sold for Q1 of 2019 of $10,600 million. Inventories, in millions Mar. 31, 2019 Dec. 31, 2018 Finished goods $5,703 $5,640 Work in process 2,239 2,214 Raw materials 940 941 Supplies 891 880 Total $9,773 $9,675 Adjustment of inventories to a LIFO basis (262) (415) Total inventories $9,508 $9,260 Required a. What inventory costing method does Dow Chemical use? Answer 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): $Answer 265 Answer Reduction Effect on cash flows (in millions): $Answer 83.4 Answer 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): $Answer 97.2 Answer Increase Effect on cash flows (in millions): $Answer 76.6 Answer 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 Answer 1.2 times Average inventory days Answer 76.2 days c. Determine the FIFO values for inventories and cost of goods sold for Q1 of 2019. Recompute inventory turnover and DIO. FIFO inventories $Answer 9,773 FIFO CGS $Answer 11,379 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 Answer 1.2 times Average inventory days Answer 78 days d. Which set of ratios would provide more useful analysis

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

Company Accounting

Authors: Ken Leo, Jeffrey Knapp, Susan Mcgowan, John Sweeting, Leah Meng

12th Edition

0730382672, 9780730382676

More Books

Students also viewed these Accounting questions

Question

Compare the tax advantages of the Roth IRA to the traditional IRA.

Answered: 1 week ago

Question

What has been your desire for leadership in CVS Health?

Answered: 1 week ago

Question

Question 5) Let n = N and Y Answered: 1 week ago

Answered: 1 week ago