Joy Company uses the LIFO inventory valuation method and reports the following:

2019 Assets	2019 Inventory	2019 LIFO Reserve	2018 LIFO Reserve
$58,720	$3,776	$4,300	$2,900

Assume a tax rate of 25%. Convert to FIFO financial statements. Assume LIFO is allowed for tax purposes.

Required:

a.

Calculate the amount by which the following balance sheet items will increase or decrease for 2019:

Inventory, Total assets, Tax liabilities, and Equity. 8 marks

b.

Calculate the amount by which the following income statement items will increase or decrease for 2019:

CGS, Pretax income, Tax expense, and NI. 8 marks

c.

Compute the common-size inventories with LIFO and with FIFO for 2019. [Compute inventory as a percentage of total assets]. Do you believe the difference is material? Explain. 8 marks

Additional information for Joy Company:

2018 Assets	2019 Revenue	2018 Inventory	2019 CGS	2019 NI
$54,302	$102,354	$3,543	$79,409	$5,248

d.

Recast Inventory and CGS using FIFO for 2019. 6 marks

e.

Compute the following ratios for 2019, under both LIFO and FIFO, and comment on whether they differ materially:

Gross profit percentage, Days inventory outstanding, and ROA (= NI/TA).

Answer rating: 100% (QA)

a ANSWER Inventory will increase by 2900 total assets will increase by 2900 tax liabilities will increase by 725 and equity will increase by 2175 WORKNG LIFO reserve at beginning of year2900 LIFO rese... View the full answer