Toys “R” Us uses LIFO to account for its inventories.Recent financial statements were used to compile the following information(in billion)

Average inventory(throughout the year)	$2.2
Current assets(at year-end)	4.7
Current liabilities(at year-end)	2.8
Net sales	11.5
Cost of goods sold	7.8
Gross profit	3.7
Average time required to collect outstanding receivables	6 days

  

Had Toys  “R” Us used FIFO inventory method, the following differents would have occurred:

1. Average inventory would have been $2.8 billion ($600 million higer than the LIFO amount).

2. Ending inventory would have been $2.7 billion ($500 million higer than the LIFO amount).

3. The cost of goods sold would have been $7.3 billion ($500 million lower than the LIFO amount).

Requirement: 

a. Compute inventory turnover rate, cunrrent ratio, gross profit rate upon the LIFO method.

b.Recompute your result from part a using the FIFO method.

c.Notice that the cost of goods sold is lower under FIFO than LIFO.What circumstances must the company have encountered to cause this situation?

d.What is the length of Toys  “R” ’s operating cycle using LIFO method?

Answer rating: 100% (QA)

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