For W5 and W7) The Skone Corporation reported at the end of the year inventories

Question

For W5 and W7) The Skone Corporation reported at the end of the year inventories of $43,900 and a LIFO reserve of $15,800. The beginning inventories was $36,200 and the beginning LIFO reserve was $13,100. The cost of goods sold was $197,500 under LIFO and the net income was $17,800 for the year. Tax rate was 30% W5. What inventory value would Skone report at the end the year if it had used the FIFO method instead of the LIFO method? w6. What net income would Skone report for the year if it had used the FiFO method instead of the LIFO method? w7. Calculate the inventory turnover ratio under the FIFO method

Explanation / Answer

5) Inventory (FIFO) = Inventory (LIFO) + LIFO reserve = 43,900 + 15,800 = 59,700

6) Increase in net income = Change in LIFO reserve x (1 - tax) = (15,800 - 13,100) x (1 - 30%) = 1,890

Net Income = 17,800 + 1,890 = 19,690

7) Inventory Turnover ratio = COGS / Average Inventory

COGS (FIFO) = COGS (LIFO) - Change in LIFO reserve = 194,800

Beginning Inventory (FIFO) = Inventory (LIFO) + LIFO reserve = 36,200 + 13,100 = 49,300

Inventory Turnover ratio = 194,800 / (59,700 + 49,300) / 2 = 3.57

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