Dow Chemical Company HW
Dow Chemical Accounting Homework
Dow Chemical Company is a manufacturer and supplier of products used primarily as raw materials in the manufacture of customer products and services. Its product lines include chemicals, advanced materials, agro-sciences and plastics businesses. Attached are the excerpts from Dow Chemical’s Annual report for 2012. Based on the information in the financial statements and footnotes, please, answer the questions below. Assume a tax rate of 35%.
1. Which cost flow assumptions does Dow Chemical use to value its inventories?
Inventories are stated at the lower of cost or market. The method of determining cost for each subsidiary varies among LIFO, FIFO, and average cost.
What is the value of inventories that Dow Chemical values at LIFO basis as of December 31, 2012?
.29 * 8476 million= 2485 million
2. Suppose that Dow Chemical had used first-in, first-out (FIFO) as a cost flow assumption for all of their Inventories. Would the book value of Inventories at December 31, 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Inventories would be higher with FIFO. Would be higher by the LIFO reserve value= 842 million.
Would Total stockholders’ equity at December 31, 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Stockholders’ equity would be higher with FIFO. Would be higher by 547 million. Difference in cumulative pre-tax income FIFO – cumulative pre-tax income LIFO (LIFO Reserve=Cum. pre-tax income FIFO - Cum. pre-tax income LIFO) times tax rate => 842 MM*(1-tax rate)= 842 * .65 = 547.3 MM
Would Income before income taxes in fiscal year 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Pretax Income would be lower with FIFO by 263 (change in LIFO reserve)
What amount would the Dow Chemical have reported as cost of goods sold in fiscal 2012 if it had always used
Dow Chemical Company is a manufacturer and supplier of products used primarily as raw materials in the manufacture of customer products and services. Its product lines include chemicals, advanced materials, agro-sciences and plastics businesses. Attached are the excerpts from Dow Chemical’s Annual report for 2012. Based on the information in the financial statements and footnotes, please, answer the questions below. Assume a tax rate of 35%.
1. Which cost flow assumptions does Dow Chemical use to value its inventories?
Inventories are stated at the lower of cost or market. The method of determining cost for each subsidiary varies among LIFO, FIFO, and average cost.
What is the value of inventories that Dow Chemical values at LIFO basis as of December 31, 2012?
.29 * 8476 million= 2485 million
2. Suppose that Dow Chemical had used first-in, first-out (FIFO) as a cost flow assumption for all of their Inventories. Would the book value of Inventories at December 31, 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Inventories would be higher with FIFO. Would be higher by the LIFO reserve value= 842 million.
Would Total stockholders’ equity at December 31, 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Stockholders’ equity would be higher with FIFO. Would be higher by 547 million. Difference in cumulative pre-tax income FIFO – cumulative pre-tax income LIFO (LIFO Reserve=Cum. pre-tax income FIFO - Cum. pre-tax income LIFO) times tax rate => 842 MM*(1-tax rate)= 842 * .65 = 547.3 MM
Would Income before income taxes in fiscal year 2012 be higher than, lower than, or the same as the amount currently recorded? If different, by how much?
Pretax Income would be lower with FIFO by 263 (change in LIFO reserve)
What amount would the Dow Chemical have reported as cost of goods sold in fiscal 2012 if it had always used