RareMetals, Inc. sells a rare metal found only in underdeveloped countries overseas. As a result of unstable
Question:
RareMetals, Inc. sells a rare metal found only in underdeveloped countries overseas. As a result of unstable governments in these countries and the rarity of the metal, the price fluctuates significantly. Financial information is given assuming the use of the first-in, first-out (FIFO) method of inventory valuation and also the last-in, first-out (LIFO) method of inventory valuation. Current assets other than inventory total $1,230 and current liabilities total $1,600. The ending inventory balances are $1,350 for FIFO and $525 for LIFO.
Required
(a) Calculate the following ratios assuming RareMetals, Inc. uses the FIFO method of inventory valuation: gross profit margin, operating profit margin, net profit margin, current ratio, and quick ratio.
(b) Calculate the ratios listed in (a) assuming RareMetals, Inc. uses the LIFO method of inventory valuation.
(c) Evaluate and explain the differences in the ratios calculated in (a) and (b).
(d) Will cash flow from operating activities differ depending on the inventory valuation method used? If so, estimate the difference and explain youranswer.
The ending inventory is the amount of inventory that a business is required to present on its balance sheet. It can be calculated using the ending inventory formula Ending Inventory Formula =...
Step by Step Answer:
Understanding financial statements
ISBN: 978-0136086246
9th Edition
Authors: Lyn M. Fraser, Aileen Ormiston