JKW Corporation has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method
Question:
Based on past history, management expects 30% of the companys annual sales to take place in the fourth quarter. Operating expenses and gross margin are expected to remain at 18% and 40% of sales, respectively, for the remainder of the year. The companys tax rate is 35%.
Required:
1. Assuming that management maintains a stable level of inventory, project earnings per share for 2014 based on the data provided.
2. Assume that you are JKWs independent auditor, and your analysis indicates that projected earnings per share will fall short of the bonus target. In the past, JKWs managers have used aggressive (and possibly unethical) behavior to achieve salary bonus targets. You suspect that the managers intend to deplete old LIFO layers deliberately in the fourth quarter. To help you detect such behavior, calculate the amount of the LIFO liquidation that would be needed in the fourth quarter to hit the EPS target in2014.
Inventory Turnover RatioThe inventory turnover ratio is a ratio of cost of goods sold to its average inventory. It is measured in times with respect to the cost of goods sold in a year normally. Inventory Turnover Ratio FormulaWhere,... Liquidation
Liquidation in finance and economics is the process of bringing a business to an end and distributing its assets to claimants. It is an event that usually occurs when a company is insolvent, meaning it cannot pay its obligations when they are due....
Step by Step Answer:
Financial Reporting and Analysis
ISBN: 978-0078025679
6th edition
Authors: Flawrence Revsine, Daniel Collins, Bruce, Mittelstaedt, Leon