Chapter Assignment Ch.7

Question 1:

FlinFlon Limited sells three products whose prices are sensitive to price fluctuations. The following inventory information is available for these products at March 31, 2018:

Product	Units	Unit Cost	Net Realizable Value
A	25	$ 7	$ 7
B	30	6	8
C	60	11	10

Instructions:

1. Calculate FlinFlon's inventory at the Lower of Cost and Net Realizable Value (LCNRV).
2. Prepare any journal entry required to record the LCNRV, assuming that FlinFlon uses a perpetual inventory system.

Question 2:

The following information is available for PepsiCo, Inc. (in U.S. $ millions):

	2015	2014	2013
Cost of goods sold	$28,384	$30,884	$31,243
Inventories	2,720	3,143	3,409
Current assets	23,031	20,663	22,203
Current liabilities	17,578	18,092	17,839

In the notes to its financial statements, PepsiCo disclosed that it uses the FIFO and average cost formulas to determine the cost of the majority of its inventory.

The industry averages for the inventory turnover, days in inventory, and current ratios are as follows:

	2015	2014
Inventory turnover	8.7 times	9.1 times
Days in inventory	42 days	40 days
Current ratio	1.3:1	1.1:1

Instructions

1. Calculate PepsiCo's inventory turnover, days in inventory, and current ratios for 2015 and 2014. Comment on the company's liquidity over the two years, and in comparison with the industry.
2. What might be the reason that PepsiCo uses more than one cost formula to determine the cost of its inventory?