Inventory:
Inventory refers to the stock or goods which will be sold in the near future and thus is an asset for the company. It comprises of the raw materials which are yet to be processed, the stock which is still going through the process of production and it also includes completed products that are ready for sale. Thus inventory is the biggest and the important source of income and profit for the business.
First In First Out:
In case of First in, first out method, also known as FIFO method, the inventory which was bought first will also be the first one to be taken out or to be sold.
Last In First Out:
In case of Last in, first out method, also known as LIFO method, the inventory which was bought in the last will be taken out first or to be sold first.
Net Profit Margin:
The revenue or income earned after eliminating costs and charges results to profit margin.
Current ratio depicts the efficiency of the company to offset its short period legal responsibilities through assets.
Full Disclosure Principle:
Full disclosure principle is one of the accounting principles which states that the company should reveal or unfold all the relevant facts and figures especially regarding the accounting policies followed by the entity in preparing financial statements which apparently affects the decisions of the reader’s. Disclosure can be made either through notes or schedules.
Consistency Principle:
Consistency principle states that a company should adhere to the once adopted policies, principles, methods and rules uniformly or consistently in the subsequent accounting periods until and unless the required change in the policy has a justified reason.
1.
To identify: The way FIFO improves net profit margin and current ratio.
2.
To identify: Change in the method being ethical or not.
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Chapter 5 Solutions
FINANCIAL ACCOUNTING FUNDAMENTALS W/ CO
- Accounting Compute for the net sales that would be reported in LIVA company's Income Statement. You are to be assigned to prepare the financial statement of LIVA Company for the year 2021. The following data were made available for you: Ending Inventory at Cost - 739, 160 Goods Available for Sale at retail - 3, 930, 000 Sales Discount - 16, 000 Net markdowns - 48, 500 Net markups - 30, 000 Beginning inventory at retail - 1, 450, 000 Purchases at retail - 2, 422, 000 The company adopts the average cost approach to estimate the value of its inventory and the cost ratio is computed at 68%.arrow_forwardQuestion: Calculate and interpret liquidity ratios Calculate the inventory turnover, days in inventory, Accounts receivable turnover and the Average Collection period for the years ending June 30, 2020, and 2019 for the Green Construction Supplies Company. Assuming that they have a 60-day credit policy, evaluate their accounts receivable management and recommend ways to improve it. Evaluate their inventory management and suggest ways to improve it. Selected information ($) 2020 2019 2018 Net Sales (80% on credit) 430,000 720,000 640,000 Cost of Goods Sold 250000 350000 320000 Accounts Receivable 220,000 110,000 76,000 Allowance for doubtful accounts 35000 18000 14000 Bad debt expense 30000 12000 9000 Inventory 150000 100000 80000arrow_forwardMaking Business Decisions: Analyzing Apple’s Inventory Turnover Ratio You are considering an investment in the common stock of Apple Inc. The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 (in millions of dollars): Cost of sales for the year ended: September 26, 2015 $140,089 September 27, 2014 112,258 Inventories: September 26, 2015 2,349 September 27, 2014 2,111 September 29, 2013 1,764 The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 for Hewlett-Packard Company (in millions of dollars): Cost of sales for the year ended: October 31, 2015 $53,081 October 31, 2014 56,469 Inventory: October 31, 2015 6,485 October 31, 2014 6,415 October 31, 2013 6,046 Use 360 days a year.arrow_forward
- Making Business Decisions: Analyzing Apple’s Inventory Turnover Ratio You are considering an investment in the common stock of Apple Inc. The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 (in millions of dollars): Cost of sales for the year ended: September 26, 2015 $140,089 September 27, 2014 112,258 Inventories: September 26, 2015 2,349 September 27, 2014 2,111 September 29, 2013 1,764 The following information is from the financial statements included in Form 10-K for fiscal years 2015 and 2014 for Hewlett-Packard Company (in millions of dollars): Cost of sales for the year ended: October 31, 2015 $53,081 October 31, 2014 56,469 Inventory: October 31, 2015 6,485 October 31, 2014 6,415 October 31, 2013 6,046 Use 360 days a year. Required: 1. Calculate the inventory turnover ratios for Apple Inc. and Hewlett-Packard Company for the years ending September 26, 2015 and October…arrow_forwardUse the following information relating to Clover Company to calculate (a) the inventory turnover ratio, (b) gross margin, and (c) the number of days' sales in inventory ratio, for years 2022 and 2023. Assume a year has 365 days. Do not round intermediate calculations and round your final answers to 3 decimal places. Cost of Average Sales Goods Sold Inventory Year 2021 $260,000 $177,500 $25,000 Year 2022 305,000 221,250 30,000 Year 2023 343,000 242,250 35,000 Inventory Gross Days' Sales Turnover Margin in Inventory Year 2022 Year 2023arrow_forwardUse the following information relating to Clover Company to calculate (a) the inventory turnover ratio, (b) gross margin, and (c) the number of days' sales in inventory ratio, for years 2022 and 2023. Assume a year has 365 days. Do not round intermediate calculations and round your final answers to 3 decimal places. Year 2021 Year 2022 Year 2023 Year 2022 Year 2023 Sales $260,000 305,000 333,000 Cost of Goods Sold $187,500 241,250 242,250 Inventory Turnover Average Inventory $25,000 30,000 38,000 Gross Margin Days' Sales in Inventoryarrow_forward
- Obtain Target Corporation's annual report for its 2018 fiscal year (year ended February 2, 2019) at http://investors.target.com a. What was Target's gross margin percentage for the fiscal year ended February 2, 2019 (2018) and 2017? Use "Sales" for these computations b. What was Target's Return on Sales percentage for 2018 and 2017? Use "Total Revenue" for these computations. c. Target's return on ales percentage for 2017 was higher than it was in 2018. Ignoring taxes, how much higher would Target's 2018 net income have been if it's return on sales percentage in 2018 had been the same as for 2017?arrow_forwardCalculate activity measures The following information was available for the year ended December 31, 2016:Net sales $365,000Cost of goods sold 292,000Average accounts receivable for the year 14,600Accounts receivable at year-end 16,000Average inventory for the year 73,000Inventory at year-end 78,400Required:Calculate the inventory turnover for 2016.Calculate the number of days’ sales in inventory for 2016, using year-end inventories.Calculate the accounts receivable turnover for 2016.Calculate the number of days’ sales in accounts receivable for 2016, using year-end accounts receivable.arrow_forwardThe ITM trading company provides you the following data for the year 2016: Inventory turnover ratio: 12 times Opening inventory at cost: $36,000 Closing inventory at cost: $54,000 Calculate cost of goods sold for the year 2016arrow_forward
- Use a spreadsheet and the following excerpts from Hileah Companys financial information to build a template that automatically calculates (A) inventory turnover and (B) number of days sales in inventory, for the year 2018.arrow_forwardUse the following information relating to Medinas Company to calculate the inventory turnover ratio, gross margin, and the number of days sales in inventory ratio, for years 2022 and 2023.arrow_forwardInventory Analysis The following account balances are taken from the records of Lewis Inc., a wholesaler of fresh fruits and vegetables: Required Compute Lewiss inventory turnover ratio for 2016 and 2015. Compute the number of days sales in inventory for 2016 and 2015. Assume 360 days in a year. Comment on your answers in parts (1) and (2) relative to the companys management of inventory over the two years. What problems do you see in its inventory management?arrow_forward
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