Chapter 6

Chapter 6 - Chapter 6 Quick Study 6-6 (10 minutes) 1. The...

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Chapter 6 Quick Study 6-6 (10 minutes) 1. The consignor is Jabar Company. The consignee is Chi Company. The consignor, Jabar Company, should include any unsold and consigned goods in its inventory. 2. Title will pass at “destination” which is Kwon Company’s receiving dock. Liu should show the $750 in its inventory at year-end as Liu retains title until the goods reach Kwon Company. Quick Study 6-7 (10 minutes) Cost of inventory (estate’s contents) Price. ............................................................................................................................ $75,000 Transportation-in. ........................................................................................................ 1,800 Insurance on shipment. ............................................................................................... 300 Cleaning and refurbishing. .......................................................................................... 1,750 Total cost of inventory. ............................................................................................... $78,850 Exercise 6-8 (20 minutes) 1. a. LIFO ratio computations LIFO current ratio (2009) = $250/$225 = 1.1 LIFO inventory turnover (2009) = $760/ [($177+$110)/2] = 5.3 LIFO days’ sales in inventory (2009) = ($110/$760) x 365 = 52.8 days b. FIFO ratio computations FIFO current ratio (2009) = $410*/$225 = 1.8 FIFO inventory turnover (2009) = $680/ [($457+$270)/2] = 1.9 FIFO days’ sales in inventory (2009) = ($270/$680) x 365 = 144.9 days *$250 + ($270 - $110) 2. The use of LIFO versus FIFO for Cook markedly impacts the ratios computed. Specifically, LIFO makes Cook appear worse in comparison to FIFO numbers on the current ratio (1.1 vs. 1.8) but better on inventory turnover (5.3 vs. 1.9) and days’ sales in inventory (52.8 vs. 144.9). These results can be generalized. That is, when costs are rising and quantities are stable or rising, the FIFO inventory exceeds LIFO inventory. This suggests that (relative to FIFO) the LIFO current ratio is understated, the LIFO inventory turnover is overstated, and the days’ sales in inventory is understated. Overall, users prefer the
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Chapter 6 - Chapter 6 Quick Study 6-6 (10 minutes) 1. The...

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