Suppose the following information is from the 2022 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 2022 and approximately 70% in 2021. 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 2021 and 2022. (2020 inventory was $182,618.) Discuss the implications of any change in the ratios. 

d. What percentage of total inventory does the 2022 LIFO reserve represent? If the company used FIFO in 2022, 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 2022 current ratio with the numbers as reported, then recalculate after adjusting for the LIFO reserve.

Transcribed Image Text:

Feb. 28, Feb. 28, 2022 2021 Inventories Finished goods Work in process Raw materials and supplies $232,893 $244,379 7,068 10,516 43,861 49,937 289,898 298,756 Less: LIFO reserve 86,025 82,085 Total (as reported) $203,873 $216,671 Cost of goods sold Current assets (as reported) $809,956 $561,395 $343,405 $780,771 $669,340 $432,321 Current liabilities