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Droog Co. is a retailer dealing in a single product. Beginning inventory at January 1 of this year is zero, operating expenses for this same
Droog Co. is a retailer dealing in a single product. Beginning inventory at January 1 of this year is zero, operating expenses for this same year are $5,000, and there are 2,000 common shares out- standing. The following purchases are made this year: CASE 4- Financie Effects Units Per Unit Cost January 100 $10 $ 1,000 March.. 300 11 3,300 June.. 600 12 7,200 October 300 14 4,200 December.... 500 15 7,500 Total... 1,800 $23,200 Ending inventory at December 31 is 800 units. End-of-year assets, excluding inventories, amount to $75,000, of which $50,000 of the $75,000 are current. Current liabilities amount to $25,000, and long-term liabilities equal $10,000. Invento CHECK (a) Income, FIFO: $8,500, LIFO: $5,900, AC: $7.112 Required: a. Determine net income for this year under each of the following inventory methods. Assume a sales price of $25 per unit and ignore income taxes. (1) FIFO (2) LIFO (3) Average cost b. Compute the following ratios under each of the inventory methods of FIFO, LIFO, and average cost. (1) Current ratio (2) Debt-to-equity ratio (3) Inventory turnover (4) Return on total assets (5) Gross margin as a percent of sales (6) Net profit as a percent of sales c. Discuss the effects of inventory accounting methods for financial statement analysis given the results from parts a and b
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