This information is available for the Automotive and Other Operations Divisions

Question

This information is available for the Automotive and Other Operations Divisions of General Motors Corporation for 2006. General Motors uses the LIFO inventory method.

(in millions) 2006
Beginning inventory $13,862
Ending inventory 13,921
LIFO reserve 1,508
Current assets 64,131
Current liabilities 67,822
Cost of goods sold 164,682
Sales 172,927

(a) Calculate the inventory turnover ratio and days in inventory. (Round turnover ratio to 3 decimal places, e.g. 15.250 and days in inventory to 1 decimal place, e.g. 20.5.)


(b) Calculate the current ratio based on inventory as reported using LIFO. (Round answer to 2 decimal places, e.g. 0.55.)


(c) Calculate the current ratio after adjusting for the LIFO reserve. (Round answer to 2 decimal places, e.g. 0.55.)

Explanation / Answer

a) Inventory turnover = cost of goods sold/average inventory. 164,682/(13862+13921)/2= 11.855 Days in inventory 365/inventory turns 365/11.855= 30.8 b) Current ratio= current assets/current liabilities 64,131/67,822= 0.95 c) (64,131+1,508)/67,822 = 0.97

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