The following information is taken from Satin financial statements (amounts in thousands) Inventory Footnote: If the first-in, first-out method of accounting for inventory had been used, inventory would have been approximately $26.9 million and $25.1 million higher than reported at 12/31/2010 and 12/31/2009, respectively. (ATTACHED DOC) Required: A) Calculate what inventory would have been at 12/31/2010 and 12/31/2009 had the FIFO inventory method been used. B) What would cost of goods sold for the year ended 12/31/2010 have been if the FIFO inventory method been used? Show your computations. C) Compute the inventory turnover ratio for 2010 using a LIFO cost-flow assumption. D) Compute the inventory turnover ratio for 2010 using a FIFO cost-flow assumption. E) Explain why the costs assigned to inventory under LIFO at the end of 2009 and 2010 are different than they are under FIFO.

The following information is taken from Satin financial statements (amounts in thousands): Inventory at LIFO Cost of goods sold at LIFO Stockholders' Equity Net Income Tax rate 12/31/2010 $219,686 754,661 242,503 31,185 37% 12/31/2009 $241,154 675,138 242,712 64,150 37% Inventory Footnote: If the first-in, first-out method of accounting for inventory had been used, inventory would have been approximately $26.9 million and $25.1 million higher than reported at 12/31/2010 and 12/31/2009, respectively. Required: A) Calculate what inventory would have been at 12/31/2010 and 12/31/2009 had the FIFO inventory method been used. B) What would cost of goods sold for the year ended 12/31/2010 have been if the FIFO inventory method been used? Show your computations. C) Compute the inventory turnover ratio for 2010 using a LIFO cost-flow assumption. D) Compute the inventory turnover ratio for 2010 using a FIFO cost-flow assumption. E) Explain why the costs assigned to inventory under LIFO at the end of 2009 and 2010 are different than they are under FIFO. Solutions to assignment of micah508 (April 21) Satin A) 2010 $ 219,686 26,900 $ 246,586 Ending inventory, LIFO Difference between LIFO and FIFO Ending inventory, FIFO Ending inventory, FIFO (amount in full) 2009 $ 241,154 25,100 $ 266,254 (Amounts in thousands) $ 246,586,000 $ 266,254,000 To confirm answer in letter b: B) Cost of goods sold, LIFO Less: Difference in ending inventory between LIFO and FIFO Add: Diference in beginning inventory between LIFO and FIFO Cost of goods sold, FIFO Cost of goods sold, FIFO (amount in full) C) $ 752,861,000 Inventory turnover (LIFO) = Cost of goods sold Average inventory Inventory turnover (LIFO) = $754,661 ($219,686 + $241,154) / 2 Inventory turnover (LIFO) = $752,861 $230,420 Inventory turnover (LIFO) = D) 3.27 Inventory turnover (FIFO) = Cost of goods sold Average inventory Inventory turnover (FIFO) = $752,861 ($266,254 + $246,586) / 2 Inventory turnover (FIFO) = $752,861 $256,420 Inventory turnover (FIFO) = E) $ 754,661 26,900 25,100 $ 752,861 (Amounts in thousands) 2.94 The costs between LIFO and FIFO are different because of the changes in prices of merchandises. Generally, prices of goods are increasing. That is why cost of ending inventory under FIFO is higher than under LIFO because it is assumed under FIFO that ending inventories came from recent purchases which generally have higher prices. Cost of goods sold under FIFO is lower because sold units are assumed to come from old inventories which generally have lower prices. If there is only one price of inventories, cost of ending inventories and cost of goods sold under LIFO and FIFO would always be the same. Beginning inventory Add: Purchases Available fo sale Less: Ending inventory COGS LIFO $ 241,154 $ 733,193 $ 974,347 $ 219,686 $ 754,661 FIFO $ 266,254 $ 733,193 $ 999,447 $ 246,586 $ 752,861