Ethical dilemma should moncrief exercise its right to

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Ethical Dilemma: Should Moncrief exercise its right to purchase inventory at will, resulting in a reduction in net income, or recognize the rights of Jim Lester to receive profit for the sale of his product, shareholders' rights to have their investment appreciate through positive earnings, and government entities' rights to collect tax on economic net income?
Chapter 08 - Inventories: Measurement 8-71 Real World Case 8-8 Requirement 1 In 1981, the LIFO conformity rule was liberalized to permit LIFO users to present designated supplemental disclosures. These disclosures allow a company using LIFO to report, in a note, the difference between inventories valued using LIFO and inventory valued as if another method had been used. Kroger's note provides this supplemental information. Requirement 2 1/31/09 Ending Beginning Inventory Inventory ($ in millions) Inventory as stated $4,859 $4,849 Add: Increase in LIFO inventory 800 604 FIFO inventory balances $5,659 $5,453 Requirement 3 Cost of goods sold for the fiscal year ended January 31, 2009 would have been $196 million lower had Kroger used FIFO for its entire inventory. While beginning inventory would have been $604 million higher, ending inventory also would have been higher by $800 million. An increase in beginning inventory causes an increase in cost of goods sold, but an increase in ending inventory causes a decrease in cost of goods sold. Purchases for the year are the same regardless of the inventory valuation method used.
Chapter 08 - Inventories: Measurement 8-72 Real World Case 8-9 Requirement 3 The following is based on Whole Food's 2009 financial statements. Answers will vary depending on the financial statement dates chosen. a. Whole Foods uses the last-in, first-out (LIFO) method for approximately 93.6% of its inventories at the end of 2009 and 94% of its inventories at the end of 2008 and FIFO for the remainder. b. Assuming that current cost approximates FIFO cost, the inventory disclosure note indicates that, if FIFO had been used to value LIFO inventories, inventories would have been higher than reported by $27.1 million at the end of 2009 and $32.7 million at the end of 2008. Cost of goods sold for 2009 would have been $5.6 million higher ($32.7 27.1) had Whole Foods used FIFO. Beginning inventory would have been $32.7 million higher and ending inventory also would have been higher by $27.1 million. An increase in beginning inventory causes an increase in cost of goods sold, while an increase in ending inventory causes a decrease in cost of goods sold. Purchases for 2009 are the same regardless of the inventory valuation method used. c. Inventory turnover = cost of goods sold divided by average inventory ($ rounded to millions) Inventory turnover = $5,277 = 16.54 $319 * *($311 + 327) ÷ 2
Chapter 08 - Inventories: Measurement 8-73 Communication Case 8-10 The dollar-value LIFO inventory estimation technique begins with the determination of the current year’s ending inventory valued in terms of year -end costs. It is not necessary for a company using DVL to track the cost of purchases during the year. All that is needed is to take the physical quantities of goods on hand

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