Suppose the following information is from the 2025 annual report of American Greetings Corporation (all dollars in thousands).

The notes to the company's financial statements also include the following information.
The last-in, first-out (LIFO) cost method is used for approximately \(75 \%\) of the domestic inventories in 2025 and approximately \(70 \%\) in 2024 . The foreign subsidiaries principally use the first-in, first-out (FIFO) method. Display material and factory supplies are carried at average-cost.

Instructions

a. Define each of the following: finished goods, work in process, and raw materials.

b. What might be a possible explanation for why the company uses FIFO for its nondomestic inventories?

c. Calculate the company's inventory turnover and days in inventory for 2024 and 2025. (2023 inventory was \(\$ 182,618\).) Discuss the implications of any change in the ratios.

d. What percentage of total inventory does the 2025 LIFO reserve represent? If the company used FIFO in 2025, what would be the value of its inventory? Do you consider this difference a "material" amount from the perspective of an analyst? Which value accurately represents the value of the company's inventory?

e. Calculate the company's 2025 current ratio with the numbers as reported, then recalculate after adjusting for the LIFO reserve.

Transcribed Image Text:

Inventories Finished goods Work in process Raw materials and supplies Less: LIFO reserve Total (as reported) Cost of goods sold Current assets (as reported) Current liabilities Feb. 28, 2025 $232,893 7,068 49,937 289,898 86,025 $203,873 $809,956 $561,395 $343,405 Feb. 28, 2024 $244,379 10,516 43,861 298,756 82,085 $216,671 $780,771 $669,340 $432,321