Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

The following data are taken from Wests 20x1 annual report: Years Ended October 31 (in $millions) 20x0 20x1 Sales $2,802 $3,663 Cost of sales 1,970

The following data are taken from Wests 20x1 annual report: Years Ended October 31 (in $millions) 20x0 20x1 Sales $2,802 $3,663 Cost of sales 1,970 2,512 Net income 111 255 Shareholders equity 2,171 2,333 The carrying value of Wests 20x1 inventories was $333 million (20x0: $249 million). West uses LIFO accounting for certain inventories (including finished goods) and values other inventory at FIFO. Wests notes to its financial statements state: If inventories had been valued at current cost, they would have been $469 million in 20x1 (20x0: $368 million). Inventories valued on the LIFO basis were $202 million in 20x1 (20x0: $157 million). Assume that FIFO is the prevailing method for all of Wests non-LIFO inventories and that its tax rate is 35%. a. Calculate Wests inventory turnover, gross profit margin, and ROE for 20x1 based on reported data. b. Recomputed the ratios in part a assuming West had used FIFO for all of its inventories. c. Describe the impact of the LIFO method on Wests ratios. d. Explain how each of the three ratios should be calculated for maximum usefulness. e. Using the data provided and the adjustment method described in the Class Notes, calculate the rate of price change experienced by West in 20x1. f. Assume that all of Wests inventories faced the same inflation rate. Adjust Wests cost of sales to 100% LIFO and compute adjusted 20x1 gross profit and net income. g. Explain the usefulness of the adjusted data in part f. h. Discuss briefly whether the assumption made in part f is a reasonable one.

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

Advanced Management Accounting Pearson New International

Authors: Robert Steven Kaplan, Anthony A. Atkinson

3rd Edition

1292026596, 978-1292026596

More Books

Students also viewed these Accounting questions

Question

Summarize the evidence for sex differences in same-sex aggression.

Answered: 1 week ago