Chapter 9, Problem 9.8DMP

Real World Case 9–8

Various inventory issues; Chapters 8 and 9; Fred’s Inc.

• LO9–1, LO9–5, LO9–6

Real World Financials

Fred’s Inc. operates general merchandise retail discount stores and full-service pharmacies in the Southeastern United States. Access the company’s 10-K for the fiscal year ended January 30, 2016. You can find the 10-K by using EDGAR at www.sec.gov. Answer the following questions.

Required:

1. What inventory methods does Fred’s use to value its inventory?

2. Which price index does the company use in applying the retail inventory method?

3. A company that uses LIFO is allowed to provide supplemental disclosures reporting the effect of using another inventory method rather than LIFO. Using the supplemental LIFO disclosures provided by Fred’s, determine the income effect of using LIFO versus another method for the current fiscal year.

4. Calculate the company’s inventory turnover ratio for the fiscal year ended January 30, 2016.

5. Assume that in the next fiscal year the company decides to switch to the average cost method. Describe the accounting treatment required for the switch.