# Question

Droog Co. is a retailer dealing in a single product. Beginning inventory at January 1 of this year is zero, operating expenses for this same year are $5,000, and there are 2,000 common shares outstanding. The following purchases are made this year:

Ending inventory at December 31 is 800 units. End-of-year assets, excluding inventories, amount to $75,000, of which $50,000 of the $75,000 are current. Current liabilities amount to $25,000, and long-term liabilities equal $10,000.

Required:

a. Determine net income for this year under each of the following inventory methods. Assume a sales price of $25 per unit and ignore income taxes.

(1) FIFO

(2) LIFO

(3) Average cost

b. Compute the following ratios under each of the inventory methods of FIFO, LIFO, and average cost.

(1) Current ratio

(2) Debt-to-equity ratio

(3) Inventory turnover

(4) Return on total assets

(5) Gross margin as a percent of sales

(6) Net profit as a percent of sales

c. Discuss the effects of inventory accounting methods for financial statement analysis given the results from parts a andb.

Ending inventory at December 31 is 800 units. End-of-year assets, excluding inventories, amount to $75,000, of which $50,000 of the $75,000 are current. Current liabilities amount to $25,000, and long-term liabilities equal $10,000.

Required:

a. Determine net income for this year under each of the following inventory methods. Assume a sales price of $25 per unit and ignore income taxes.

(1) FIFO

(2) LIFO

(3) Average cost

b. Compute the following ratios under each of the inventory methods of FIFO, LIFO, and average cost.

(1) Current ratio

(2) Debt-to-equity ratio

(3) Inventory turnover

(4) Return on total assets

(5) Gross margin as a percent of sales

(6) Net profit as a percent of sales

c. Discuss the effects of inventory accounting methods for financial statement analysis given the results from parts a andb.

## Answer to relevant Questions

Refer to the annual report of Campbell Soup Company in Appendix A.a. Compute Campbell Soup's working capital at the end of Year 11.b. Campbell Soup reports net receivables totaling over $527 million. To whom has it extended ...Give an example of a cash flow hedge and an example of a fair value hedge.From an analysis point of view, is pooling accounting or purchase accounting for a business combination preferable? Explain with reference to the balance sheet and income statement.Indicate factors that can alter estimates for the benefit periods of intangible assets.Munger.Com began operations on January 1, 2006. The company reports the following information about its investments at December 31, 2006:Required:a. Show how each of these investments are reported on the Munger.Com balance ...Post your question

0