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    2016030f4150712chap 8 Assignment

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    2016030f4150712chap 8 Assignment

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    2016030f4150712chap 8 Assignment

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    Chap 8 assignment

    LO8-6
    Phillips Supply uses a periodic inventory system but needs to determine the
    EXERCISE 8.10 approximate amount of inventory at the end of each month without taking a
    physical inventory. Phillips has provided the following inventory data:
    Estimating
    Inventory by the
    Retail Method

    Estimate the cost of goods sold and the cost of the July 31 ending
    inventory using the retail method of evaluation.

    Was the cost of Phillips's inventory, as a percentage of retail selling


    prices, higher or lower in July than it was in June? Explain.

    Cost
    Inventory of merchandise, June
    30
    Purchases during July
    Goods available for sale
    during July

    Price

    $300,000.00

    Retail Selling
    Price
    $500,000.00

    222,000.00

    400,000.00

    522,000.00

    900,000.00

    Cost Ratio (522,000/900,000)= 58%


    Net sales during
    July
    Inventory of merchandise,
    July 30
    Ending Inventory at
    Cost:
    300,000 x58%=
    Cost of Goods
    Sold:
    $522,000-$174,000=
    Cost of Inventory for June
    (300,000/500,000)= 60%
    Cost of Inventory for July
    (222,000/400,000)= 55.5%

    600,000.00
    300,000.00
    174,000.00
    348,000.00

    It shows that the cost of Phillips inventory as a percentage of retail sales


    in July is lower than it was in June. At June 30, the percentage was 60%.
    Meanwhile, in July the percentage was only 55.5% which is based on
    Phillips purchases.

    LO8-1, LO87
    Walmart uses LIFO to account for its inventories. Recent financial statements
    were used to compile the following information (dollar figures are in millions):
    PROBLEM
    8.8A
    FIFO versus
    LIFO
    Comparisons

    Instructions
    1. Using the information provided, compute the following measures based
    upon the LIFO method:
    1. Inventory turnover.
    Cost of goods sold/average Inventory= 352,488/42,259= 8.34
    times
    2. Current ratio (see Chapter 5 for a discussion of this ratio).
    Current Ratio= Current assets/Current Liabilities=
    59,940/71,818= 0.83
    3. Gross profit rate (see Chapter 6 for a discussion of this statistic).
    Gross profit rate= Gross profit/Sales= 116,674/469,162=
    24.87%
    2. Assuming cost of goods sold would be lower under FIFO, what
    circumstances must the company have encountered to cause this situation?
    (Were replacement costs, on average, rising or falling?)
    The cost of goods sold is lower under FIFO (First In, First Out) as to
    compare to LIFOs cost of goods sold because the economic price of
    the product is continuing to increase from period to period. The cost
    of the last in product, in fact, is the basis for computing

    COGS/Inventory under LIFO, whereas, the First In product cost will


    be summed for FIFOs COGS. Thus, it causes a lower profit margin
    (if economic cost of the product increases) than assigning the first or
    oldest costs to the cost of goods sold under FIFO. The replacement
    Cost will increase under FIFO rather than LIFO in the state of
    increasing the cost .
    3. How would you expect these ratios to differ (i.e., what direction) had the
    company used FIFO instead of LIFO?
    If the economic cost of the product increases, the inventory turnover
    ratio under FIFO will decrease because the COGS diminish its value
    and the average inventory increases. Moreover, the current ratio and
    gross profit margin ratio will increase due to the increase of the
    ending inventory.
    Meanwhile, if the costs of the product continue to decrease; it will
    take the other/opposite directions.

    4. Explain why the average number of days required by Walmart to collect


    its accounts receivable is so low. (See Chapter 7 for a discussion of the
    accounts receivable turnover rate.)
    The average number of days to collect by Walmart is so low because
    the firm is maintaining small value of accounts Receivable. Perhaps,
    the firm uses some alternative to attract the customer to pay its debt
    on time through giving discounts (e.g. 2/10,n/30). This is a good
    indication that the company is doing well in its receivables and thus, it
    keeps small value of allowance for bad debts.

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