In anticipation of declining inventory replacement costs, the management of Computer Products Co. elects to use the FIFO inventory method rather than LIFO. Explain how this decision should affect the company's future:
b. Net cash flow from operating activities.

A recent annual report of Kraft Foods, Inc., reveals the following information (dollar amounts are stated in millions):

$$\begin{array}{|cc} \text {Cost of goods sold } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$24,651 \\ \text { Inventory (beginning of year)} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 3,506 \\ \text {Inventory (end of year) } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots & 4,096 \\ \text {Average time required to collect accounts receivable} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 45 \text{days}\\ \end{array}$$

c. What is the length of Kraft's operating cycle?

Baxter Corporation has been using FIFO during a period of rising costs. Explain whether you would expect each of the following measurements to be higher or lower if the company had been using LIFO.
c. Income taxes expense.

Baxter Corporation has been using FIFO during a period of rising costs. Explain whether you would expect each of the following measurements to be higher or lower if the company had been using LIFO.
b. Inventory turnover rate.

A recent annual report of Kraft Foods, Inc., reveals the following information (dollar amounts are stated in millions):

$$\begin{array}{|cc} \text {Cost of goods sold } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$24,651 \\ \text { Inventory (beginning of year)} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 3,506 \\ \text {Inventory (end of year) } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots & 4,096 \\ \text {Average time required to collect accounts receivable} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 45 \text{days}\\ \end{array}$$

b. Compute the number of days required by Kraft to sell its average inventory (round to the nearest day).

A recent annual report of Kraft Foods, Inc., reveals the following information (dollar amounts are stated in millions):

$$\begin{array}{|cc} \text {Cost of goods sold } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$24,651 \\ \text { Inventory (beginning of year)} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 3,506 \\ \text {Inventory (end of year) } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots & 4,096 \\ \text {Average time required to collect accounts receivable} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 45 \text{days}\\ \end{array}$$

a. Compute Kraft's inventory turnover for the year (round to nearest tenth).

Baxter Corporation has been using FIFO during a period of rising costs. Explain whether you would expect each of the following measurements to be higher or lower if the company had been using LIFO.
a. Net income.

Ford Motor Company uses LIFO to account for all of its domestic inventories. A note to the company's financial statements indicated that:
If the FIFO method had been used instead of the LIFO method, inventories would have been higher by over a billion dollars.

a. Indicate whether each of the following financial measurements would have been higher, lower, or unaffected had Ford Motor Company used FIFO instead of LIFO. Explain the reasoning behind your answers.

1. Gross profit rate.
2. Reported net income.
3. Current ratio (Ford's current ratio is greater than 1 to 1).
4. Inventory turnover rate.
5. Accounts receivable turnover rate.
6. Cash payments made to suppliers.
7. Net cash flow from operations (Ford's operating cash flows are positive).

How is the inventory turnover computed? Why is this measurement of interest to short-term creditors?

An annual report issued by General Motors Corporation included the following information:

$$\begin{array}{|cc} \text{Inventories are valued using various cost methods. The percentage of year-end}\\ \text{inventories valued using each of these methods is:}\\ \text {LIFO} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50\%& \\ \text { FIFO and Average Cost} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50 \% & \\ \text {If the LIFO method of valuation had not been used, total inventories would have } \\ \text {been \$1.4 billion more than reported.} \\ \end{array}$$

c. On the basis of the information from the company's annual report, do its inventory replacement costs appear to be rising or falling? Explain.

An annual report issued by General Motors Corporation included the following information:

$$\begin{array}{|cc} \text{Inventories are valued using various cost methods. The percentage of year-end}\\ \text{inventories valued using each of these methods is:}\\ \text {LIFO} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50\%& \\ \text { FIFO and Average Cost} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50 \% & \\ \text {If the LIFO method of valuation had not been used, total inventories would have } \\ \text {been \$1.4 billion more than reported.} \\ \end{array}$$

b. Had the LIFO method not been used, would the company's gross profit reported in its income statement have been higher or lower? Explain.

An annual report issued by General Motors Corporation included the following information:

$$\begin{array}{|cc} \text{Inventories are valued using various cost methods. The percentage of year-end}\\ \text{inventories valued using each of these methods is:}\\ \text {LIFO} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50\%& \\ \text { FIFO and Average Cost} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 50 \% & \\ \text {If the LIFO method of valuation had not been used, total inventories would have } \\ \text {been \$1.4 billion more than reported.} \\ \end{array}$$

a. Does the company's use of three different inventory methods violate the accounting principle of consistency? Defend your answer.

A store using the retail inventory method takes its physical inventory by applying current retail prices as marked on the merchandise to the quantities counted. Does this procedure mean that the inventory will appear in the financial statements at retail selling price? Explain.

Phillips Supply uses a periodic inventory system but needs to determine the approximate amount of inventory at the end of each month without taking a physical inventory. Phillips has provided the following inventory data:

$$\begin{array}{|cc} & & \textbf{Cost price} &\textbf{Retail selling price}\\ \text {Inventory of merchandise, June 30} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$300,000 & \$500,000 \\ \text {Purchases during July} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & 222,000& 400,000 \\ \text {Goods available for sale during July } & \cdots\cdots\cdots\cdots\cdots\cdots\cdots & \$522,000 & \$900,000\\ \text {Net sales during July} & \cdots\cdots\cdots\cdots\cdots\cdots\cdots\cdots & & \$600,000\\ \end{array}$$

b. Was the cost of Phillips's inventory, as a percentage of retail selling prices, higher or lower in July than it was in June? Explain.