Ford Motor Company uses LIFO to account for all of its domestic inventories. A note to the
Question:
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).
b. Provide your own assessment of whether using LIFO has made Ford Motor Company more or less (1) liquid and (2) well-off. Defend your answers.
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial... Accounts Receivable
Accounts receivables are debts owed to your company, usually from sales on credit. Accounts receivable is business asset, the sum of the money owed to you by customers who haven’t paid.The standard procedure in business-to-business sales is that...
Step by Step Answer:
a 1 T he gross profit rate would have been higher had the company been using FIFO because older and therefore lower costs would have been charged to the Cost of Goods Sold account This would have resu...View the full answer
Financial and Managerial Accounting the basis for business decisions
ISBN: 978-0078111044
16th edition
Authors: Jan Williams, Susan Haka, Mark Bettner, Joseph Carcello
