FUND FINCL ACCT (LL) W/CONNECT >IB<
5th Edition
ISBN: 9781260036138
Author: PHILLIPS
Publisher: MCG
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Textbook Question
Chapter 13, Problem 13ME
Analyzing the Impact of Accounting Alternatives
Nevis Corporation operates in an industry where costs are falling. The company is considering changing its inventory method from FIFO to LIFO and wants to determine the impact that the change would have on selected accounting ratios in future years. In general, what impact would you expect on the following ratios: net profit margin, fixed asset turnover, and
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The management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense.
Assuming that the price the company pays for inventory is increasing, which method will:
(a) provide the highest net income? Select the inventory-costing method that will provide the highest net income
(b) provide the highest ending inventory? Select the inventory-costing method that will provide the highest ending inventory
(c) result in the lowest income tax expense? Select the inventory-costing method that will result in the lowest income tax expense
(d) result in the most stable earnings over a number of years? Select the inventory-costing method that will result in the most stable earnings over a number of years
Required: Use an Excel file to answer the following questions.
Compute the following ratios for the companies’ 2014 fiscal years. (Use formulas):
Current ratio
Average days to sell inventory. (Use average inventory.)
Debt to assets ratio.
Return on investment. (Use average assets and use “earnings from continuing operations” rather than “net earnings.”)
Gross margin percentage.
Asset turnover. (Use average assets.)
Net margin. (Use “earnings from continuing operations” rather than “net earnings.”)
Plant assets to long-term debt ratio.
Which company appears to be more profitable? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.
Which company appears to have the higher level of financial risk? Explain your answer and identify which ratio(s) from Requirement a you used to reach your conclusion.
Which company appears to be charging higher prices for its goods? Explain your answer and identify which ratio(s) from Requirement a you…
What are the implications and accounting treatment for a company transitioning from LIFO (Last-In, First-Out) inventory valuation to FIFO (First-In, First-Out) during a period of rising inventory costs?
Chapter 13 Solutions
FUND FINCL ACCT (LL) W/CONNECT >IB<
Ch. 13 - What is the general goal of trend analysis?Ch. 13 - Prob. 2QCh. 13 - What is ratio analysis? Why is it useful?Ch. 13 - What benchmarks are commonly used for interpreting...Ch. 13 - Prob. 5QCh. 13 - Prob. 6QCh. 13 - Slow Cellars current ratio increased from 1.2 to...Ch. 13 - From last year to this year, Colossal Companys...Ch. 13 - From last year to this year, Berry Bam reported...Ch. 13 - Explain whether the following situations, taken...
Ch. 13 - What are the two essential characteristics of...Ch. 13 - Prob. 12QCh. 13 - Prob. 13QCh. 13 - Prob. 14QCh. 13 - Prob. 15QCh. 13 - Prob. 16QCh. 13 - 1. Which of the following ratios is not used to...Ch. 13 - Prob. 2MCCh. 13 - Prob. 3MCCh. 13 - Analysts use ratios to a. Compare different...Ch. 13 - Which of the following ratios incorporates stock...Ch. 13 - Prob. 6MCCh. 13 - Prob. 7MCCh. 13 - A bank is least likely to use which of the...Ch. 13 - Prob. 9MCCh. 13 - (Supplement 13A) Which of the following items is...Ch. 13 - Calculations for Horizontal Analyses Using the...Ch. 13 - Calculations for Vertical Analyses Refer to M13-1....Ch. 13 - Interpreting Horizontal Analyses Refer to the...Ch. 13 - Interpreting Vertical Analyses Refer to the...Ch. 13 - Prob. 5MECh. 13 - Prob. 6MECh. 13 - Prob. 7MECh. 13 - Analyzing the Inventory Turnover Ratio A...Ch. 13 - Inferring Financial Information Using the Current...Ch. 13 - Prob. 10MECh. 13 - Identifying Relevant Ratios Identify the ratio...Ch. 13 - Prob. 12MECh. 13 - Analyzing the Impact of Accounting Alternatives...Ch. 13 - Describing the Effect of Accounting Decisions on...Ch. 13 - Prob. 1ECh. 13 - Prob. 2ECh. 13 - Prob. 3ECh. 13 - Prob. 4ECh. 13 - Prob. 5ECh. 13 - Matching Each Ratio with Its Computational Formula...Ch. 13 - Computing and Interpreting Selected Liquidity...Ch. 13 - Prob. 8ECh. 13 - Prob. 9ECh. 13 - Prob. 10ECh. 13 - Prob. 11ECh. 13 - Prob. 12ECh. 13 - Prob. 13ECh. 13 - Prob. 14ECh. 13 - Analyzing the Impact of Alternative Inventory...Ch. 13 - Prob. 1CPCh. 13 - Prob. 2CPCh. 13 - Prob. 3CPCh. 13 - Prob. 4CPCh. 13 - Prob. 5CPCh. 13 - Prob. 6CPCh. 13 - Prob. 7CPCh. 13 - Prob. 1PACh. 13 - Prob. 2PACh. 13 - Prob. 3PACh. 13 - Prob. 4PACh. 13 - Prob. 5PACh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PACh. 13 - Prob. 1PBCh. 13 - Prob. 2PBCh. 13 - Prob. 3PBCh. 13 - Prob. 4PBCh. 13 - Prob. 5PBCh. 13 - Using Ratios to Compare Loan Requests from Two...Ch. 13 - Prob. 7PBCh. 13 - Prob. 1SDCCh. 13 - Prob. 2SDCCh. 13 - Prob. 5SDCCh. 13 - Prob. 6SDCCh. 13 - Prob. 7SDCCh. 13 - Prob. 1CC
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- A high inventory turnover ratio provides evidence that a company is having problems with stockouts and disgruntled customers. Do you agree? Explain.arrow_forwardCalculate the projected inventory turnover, days sales outstanding (DSO), fixed assets turnover, and total assets turnover. How does Computron’s utilization of assets stack up against that of other firms in its industry?arrow_forwardEffects of Inventory Costing Methods Refer to your answers for Filimonov Inc. in Cornerstone Exercises 6-22 through 6-24. Required: 1. In a period of rising prices, which inventory costing method produces the highest amount for ending inventory? 2. In a period of rising prices, which inventory costing method produces the highest net income? 3. In a period of rising prices, which inventory costing method produces the lowest payment for income taxes? 4. In a period of rising prices, which inventory method generally produces the most realistic amount for cost of goods sold? For inventory? Would your answer change if inventory prices were decreasing during the period?arrow_forward
- Effects of Inventory Costing Methods Refer to the information for Tyler Company above. Required: 1. Which inventory costing method produces the highest amount for net income? 2. Which inventory costing method produces the lowest amount for taxes? 3. Which inventory costing method produces the highest amount for ending inventory? 4. How would your answers to Requirements 1-3 change if inventory prices declined during the period?arrow_forwardUse the following hypothetical data for Walgreens in Years 11 and 12 to project revenues, cost of goods sold, and inventory for Year +1. Assume that Walgreenss Year +1 revenue growth rate, gross profit margin, and inventory turnover will be identical to Year 12. Project the average inventory balance in Year +1 and use it to compute the implied ending inventory balance.arrow_forwardThis year your company has purchased less expensivemerchandise inventory but has not changed its sellingprices. What effect will this change have on the company’sgross profit percentage this year, in comparison to lastyear?a. The ratio will not change.b. The ratio will increase.c. The ratio will decrease.d. Cannot determinearrow_forward
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