Comments yes we know that bacardi ages its rum for 13

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Comments:Yes. We know that Bacardi ages its rum for 1–3 years, so we would expect work-in-process turnover to be slow. (In fact, 223 days is shorter than the ex-ante expectation.) Conversely, it makes sense that finished goods turnover is much more rapid. Once the rum is ready for sale, it is shipped quickly.Requirement 2:FIFO income (estimate):9-152
FIFO net income = LIFO net income + Change in LIFO reserve (1 - tax rate*)=$45,568 + ($700 - $20,800) (1 - 0.17)=$28,885* Tax rate = 17% per information given in the question.Comments:9-153
The substantial drop in the LIFO reserve indicates that the price of molasses (the major component of raw materials inventory) has declined considerably during Year 2. Hence, Bacardi faces a deflationary situation that results in higher net income under LIFO than under FIFO.9-154
Requirement 3:Inventory turnover ratio (in days):LIFO cost of goods sold+Pre - tax liquidationAvg. LIFO inventory +Avg. LIFO reserve= $65,374 - $1,400* /(1- 0.17)0.5($53,812+$20,800+$51,892+$700)$63,687$63,602= 1.0019-155
3651.001= 364.5 days* Recall that liquidation caused a decreasein net income.Comments:9-156
This total turnover measure should reflect the entire conversion process from purchase of raw materials through manufacture and aging up to sale of finished product. Yet the estimate computed above is less than the 1- to 3-year aging schedule disclosed in Bacardi’s annual report.One possible reason for this apparent discrepancy is the equal weight given to beginning and ending LIFO reserves in the denominator, which assumes that price declines have been uniform throughout the year.9-157
P9-11. LIFO inventory—comprehensiveRequirement 1:FIFO income before taxes.FIFO income before taxes = LIFO income before taxes + Ending LIFO reserve - Beginning LIFO reserve2000 FIFO income before taxes = $37,809 + $37,154 - $37,367 9-158
= $37,596 thousand1999 FIFO income before taxes = $43,268 + 37,367 - 39,205 = $41,430 thousand9-159
Requirement 2:Realized holding gains included in 2000, 1999, and 1998 income before taxes:2000: $147,0001999: $1,174,0001998: $591,0009-160
Requirement 3:Explanation of why FIFO income differs from LIFO income.2000:FIFO income before taxes is lower by $213,000. To help understand why, we will first reconcile the year-to-year change in the LIFO reserve:5/28/99 LIFO reserve$37,367,000 LIFO liquidation(147,000) 9-161
Decrease in inventory costs (plugged)_(66,000)6/2/00 LIFO reserve$37,154,000So FIFO income is lower because of two factors, 1) LIFO liquidation and 2) falling inventory costs. The $213,000 difference is the sum of $147,000 + $66,000.1999:FIFO income before taxes is lower by $1,838,000. Here’s why:9-162
5/29/98 LIFO reserve$39,205,000LIFO liquidation(1,174,000)Decrease in inventory costs (plugged)_(664,000)5/28/99 LIFO reserve$37,367,000So FIFO income before taxes is lower by $1,174,000 + $664,000 = $1,838,000.Requirement 4:9-163
Total amount of income tax saved at the end of fiscal 2000 and 1999:2000:$37,154,000 ×0.35 = $13,003,9001999:$37,367,000 ×0.35 =$13,078,450Oxford's cumulative tax savings went down between fiscal years end 1999 and 2000 by $74,500 because pre-tax LIFO income exceeded pre-tax FIFO income in 2000 by $213,000. That is, $213,000 x 0.35 = $74,500.

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