Walmart 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)..................................$ 45,000
Current assets (at year-end) ...................................................63,278
Current liabilities (at year-end) ................................................65,272
Sales .............................................................................482,229
Cost of goods sold ............................................................365,086
Gross profit ....................................................................117,143
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?