The following information is from the 2007 annual report of American Greetings Corporation (all dollars in thousands).

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The following information is from the 2007 annual report of American Greetings Corporation (all dollars in thousands).


The following information is from the 2007 annual report of


The following information comes from the notes to the company's financial statements. Finished products, work in process, and raw material inventories are carried at the lower-of-cost-or-market. The last-in, first-out (LIFO) cost method is used for approximately 65% of the domestic inventories in 2007 and approximately 55% in 2006. The foreign subsidiaries principally use the first-in, first-out 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 ratio and days in inventory for 2006 and
2007. (2005 inventory was $218,711.) Discuss the implications of any change in the ratios.
(d) What percentage of total inventory does the 2007 LIFO reserve represent? If the company used FIFO in 2007, 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 2007 current ratio with the numbers as reported, then recalculate after adjusting for the LIFOreserve.

Inventory Turnover Ratio
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,...
Corporation
A Corporation is a legal form of business that is separate from its owner. In other words, a corporation is a business or organization formed by a group of people, and its right and liabilities separate from those of the individuals involved. It may...
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Financial Accounting Tools for Business Decision Making

ISBN: 978-0470239803

5th Edition

Authors: Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

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