6725 = 25.57% In answering the following questions‚ please refer to the financial statements of Caterpillar Inc. (CAT) and the relevant Notes to these statements at the end of this write-up. 1. What could be the cause(s) for the shift in LIFO-based inventory from 70% at December 31‚ 2010 to 65% at December 31‚ 2011? A decrease in the replacement cost for Cat’s inventories‚ or an increase in the obsolescence of Cat’s older inventories could cause a decrease in the reported total value
Free FIFO and LIFO accounting Inventory Cost of goods sold
first-out (FIFO); last-in‚ last-out (LIFO); and average costs are the methods used in cash flow assumptions. Using the FIFO method‚ cost of the ending inventory is determined “by taking the unit cost of the most recent purchase and working backward until all units of inventory have been costed” (Kimmel‚ 2012). Therefore‚ the first goods that are bought are the first goods to be sold. With FIFO‚ the ending inventory reflects the prices of the most recent units purchased. Using the LIFO method‚ the
Free FIFO and LIFO accounting Inventory Revenue
with goods in the process of becoming finished products and the finished products themselves. Inventory usually comprises a significant portion of total assets. There are three main methods for calculating inventory: Last-in‚ First-out (LIFO); First-in‚ First-out (FIFO); and Average Cost Method (AVCO). Because the cost of raw materials can change over time‚ even during the same accounting
Premium Inventory
sold……………………………….. 90‚000 Gross profit………………………………………… $60‚000 (15-20 min.) S 6-3 a b c Average Cost FIFO LIFO Cost of goods sold: Average (26 × $154.71) $4‚022.46 FIFO $1‚260 + (17 × $160) $3‚980 LIFO $4‚000 + (1 × $140) $4‚140 Ending inventory: Average (8 × $154.71) $ 1‚237.68 FIFO (8 × $160) $1‚280 LIFO (8 × $140) $1‚120 Computations: Units sold = 26 (9 + 25 − 8) Units in ending inventory = 8 Average cost
Premium Inventory FIFO and LIFO accounting Revenue
reporting the highest amount of income possible. Thus the CEO will be pleased if the company uses the FIFO method. This method recognizes as cost of goods sold the oldest costs‚ and because prices are rising‚ the costs charged to cost of goods sold will be less than if LIFO is used. b). It would be difficult to state absolutely which method is truly in the best interest of the stockholders‚ as FIFO results in lower COGS on the income report; it also results in higher earnings. But when earnings are
Free FIFO and LIFO accounting Inventory Revenue
Summit Distributors was in danger of violating loan covenants because of slow economic activity and forecasted losses and was faced with a choice. Changing the inventory valuation method from LIFO to FIFO would avoid default but would require higher future income taxes. Not changing could mean default on covenants‚ renegotiating loan terms at less favorable interest rates‚ or possible bankruptcy. Therefor even if we assumed no cash- flow consequences associated with the change‚ the answer would
Premium FIFO and LIFO accounting Balance sheet Loan
Case：Sears‚ Roebuck and Co. vs. Wal-Mart Stores‚ Inc. Financial Statement Case analysis 1． How do the retailing strategies of Sears and Wal-Mart differ? How does each firm operate their business/attempt to create value? The two companies differs in retailing strategy in two ways. 1. Credit sales boost sales greatly in Sears‚ not in Wal-mart Since 1992 when Arthur C. Martinez was brought on board to head Sears’s retailing operations‚ credit sales‚ especially through the use of the
Premium Financial ratios Balance sheet Inventory
However‚ because of tax law requirements‚ if a company uses this assumption for tax purposes it must also use it for its financial statements. Whole Foods Market uses LIFO (Last-in‚ First-out) method to determine cost. It does not coincide with the actual movement of goods. LIFO is used during inflation to defer income tax payments. Under LIFO the goods in inventory at the beginning of the period are assumed to remain in the ending inventory
Premium Inventory Balance sheet FIFO and LIFO accounting
statements under the average cost‚ FIFO‚ and LIFO methods. 2. Sales revenue for December totaled $23‚000. Compute 25th Century’s gross profit for December under each method. 3. Which method will result in the lowest income taxes for 25th Century? Why? Which method will result in the highest net income for 25th Century? Why? ------------------------------------------------- E-15 Measuring and journalizing inventory and cost of goods sold in a perpetual system—FIFO [20–25 min] Putter’s Paradise
Free FIFO and LIFO accounting Inventory
the Beginning Inventory 1020.00 21.20 21624.00 From the first purchase 700.00 21.50 15050.00 From the second purchase 700.00 21.50 15050.00 Inventory Statement for 2006‚ FIFO Method Cost of Goods Sold Cost of Goods Sold Total / Cost of Goods Sold Ending Inventory Total / Ending Inventory Inventory Statement for 2005‚ FIFO Method From the third purchase 660.00 22.00 14520.00 3080.00 66244.00 From the third purchase 40.00 22.00 880.00 From the fourth purchase 1000.00 22.25 22250.00 1040
Free FIFO and LIFO accounting Inventory