Wal-Mart uses LIFO to account for its inventories. Recent financial statements were used to compile the following information (dollar figures are in millions):

Average inventory (throughout the year). . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . $ 33,835

Current assets (at year-end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . .. . . . . . . 48,949

Current liabilities (at year-end) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 55,390

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . 401,244

Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 306,158

Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . 95,086

Average time required to collect outstanding receivables (approximate). . . . . . . . . . . 10 days

Instructions

a. Using the information provided, compute the following measures based upon the LIFO method:

1. Inventory turnover.

2. Current ratio (see Chapter 5 for a discussion of this ratio).

3. Gross profit rate (see Chapter 6 for a discussion of this statistic).

b. Assuming cost of goods sold would be lower under FIFO, what circumstances must the company have encountered to cause this situation? (Were replacement costs, on average, rising or falling?)

c. How would you expect these ratios to differ (i.e., what direction) had the company used FIFO instead of LIFO?

d. Explain why the average number of days required by Walmart to collect its accounts receivable is so low. (See Chapter 7 for a discussion of the accounts receivable turnover rate.)