FSR Part $1.$ PPI Co$.$

PPI has already completed most of the necessary transactions for the current year $($see below$).$However$,$ they have neglected to include several key pieces of information. Throughout the$$semester$,$ you will be adding and incorporating this additional information to complete the$$company$\text{'}$s financial report. PPI$$s tax rate is $30\%.$

PPI's management is afraid that an error was made when calculating ending inventory and COGS for$$the year. They would like you to go back through the inventory calculations to correct any possible$$mistakes$.$PPI uses the Dollar Value LIFO system for calculating inventory. The price index for $2022$ is $108,$ and$$the price indices for $2021$ and $2020$ were $105$ and $100,$ respectively. If PPI had purchased its $2020$ inventory at the end of $2020,$ it would have cost the company$$$$2,942,940.$ If the company had purchased its $2021$ on December $31,2021,$ it would have cost the$$company $$3,969,147.$ If the company had purchased all of the items still inventory on December $31,2022$ on December $31,2022,$ it would have cost the company $$3,885,991.$

PPI$$s management would like to know the effect of your adjustment, if any, on the following ratios:

$1.$ Inventory Turnover

$2.$ Current Ratio

$3.$ ROA

Calculations:

$1.$ Make the appropriate journal entries, if any, to correct the reported values of inventory and COGS $($including any necessary changes to income tax expense$).$

$2.$ Make any necessary changes to the financial statements. $$

Critical Thinking:

$1.$Calculate each of the required ratios using the original values $($before any changes$)$ and the$$updated values $($after your changes$).$

$2.$ How do you think market analysts will react to the correction to inventory? Do you think$$they will downgrade their recommendation from buy to hold or sell? Why or why not?