This information is available for the Automotive and Other Operations Divisions

Question

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

(in millions) 2006
Beginning inventory $15,415
Ending inventory 14,179
LIFO reserve 2,197
Current assets 75,972
Current liabilities 69,973
Cost of goods sold 164,693
Sales 174,404


(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.)



Inventory turnover ratio times
Days in inventory days


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

: 1


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

: 1

Explanation / Answer

a. Inventory turnover=Cost of Goods Sold/average inventory=165,228/((14924+14679)/2)=165,228/14801.5=11.1629 365days/11.1629=32.697=32.7 days one time turnover b.Current assets/Current liabilities=72,124/70,138=1.03 c. (Current assets-LIFO reserve)/Current liabilities=(72124-2328)/70138=69796/70138=.99

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