Supple mental LIFO disclosures; Caterpillar
• LO8–4, LO8–6
Real World Financials
Caterpillar, Inc., is one of the world’s largest manufacturers of construction, mining, and forestry machinery. The following disclosure note is included in the company’s 2015 financial statements:
D. Inventories ($ in millions)
Inventories are stated at the lower of cost or market. Cost is principally determined using the last-in, first-out (LIFO) method. If the FIFO (first-in, first-out) method had been in use, inventories would have been $2,498 million and $2,430 million higher than reported at December 31, 2015 and 2014, respectively.
Required:
1. The company reported LIFO cost of goods sold of $33,742 million. Calculate the amount that would be reported for cost of goods sold had Caterpillar used the FIFO inventory method for all of its inventory.
2. How does the amount in requirement 1 affect income before taxes?
3. Why might the information contained in the disclosure note be useful to a financial analyst?
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Chapter 8 Solutions
INTERMEDIATE ACCOUNTING RMU 9TH EDITION
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- Required information Problem 14-15 (Algo) Comprehensive Ratio Analysis [LO14-2, LO14-3, LO14-4, LO14-5, LO14-6] [The following information applies to the questions displayed below.] You have just been hired as a financial analyst for Lydex Company, a manufacturer of safety helmets. Your boss has asked you to perform a comprehensive analysis of the company's financial statements, including comparing Lydex's performance to its major competitors. The company's financial statements for the last two years are as follows: Assets Current assets: Cash Marketable securities Accounts receivable, net Inventory Prepaid expenses Total current assets Plant and equipment, net Total assets Liabilities and Stockholders' Equity Liabilities: Current liabilities. Note payable, 10% Total liabilities Stockholders' equity: Common stock, $75 par value Retained earnings Total stockholders' equity Total liabilities and stockholders' equity Sales (all on account) Cost of goods sold Lydex Company Comparative…arrow_forwardCh05 Excel Assignment EX 05 -17 (14th ed) Break-even analysis for a service company Use the provided Excel template to complete the following question using Excel formulas where appropriate. ..... .. Sprint Nextel is one of the largest digital wireless service providers in the United States. In a recent year, it had approximately 32.5 million direct subscribers (accounts) that generated revenue of $35,345 million. Costs and expenses for the year were as follows (in millions): Cost of revenue $20,841 9,765 Selling, general, and administrative expenses Depreciation 2,239 Assume that 70% of the cost of revenue and 30% of the selling, general, and administrative expenses are variable to the number of direct subscribers (асcounts). 1. What is Sprint Nextel's break-even number of accounts, using the data and assumptions given? Round units (accounts) and per-account amounts to one decimal place. 2. How much revenue per account would be sufficient for Sprint Nextel to break even if the number…arrow_forwardProblem 17-2 (LO 17-1) A service company has the... A service company has the following financial information (in millions of $) Sales $510 210 Cost of outsourced facilitating goods Cost of in-house services provided Administrative costs 199 77 Pretax earnings 24 (Round answers to 1 decimal place.) a. What is the profit leverage effect of reducing the cost of the facilitating goods in this company? b. It has been suggested that the in-house services costs could be reduced by 10 percent in the coming year by implementing lean systems. What effect would this have on earnings increase in percentage? c. What is the profit leverage effect of in-house services relative to profits?arrow_forward
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- Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
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