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- 2013-8-18
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yet another Qbank question on inventory
here is the question
Selected financial data from Krandall, Inc.’s balance sheet for the year ended December 31 was as follows (in $):
Total Assets 11,800,000
Inventory 2,400,000
Common Stock 1,000,000
Retained Earnings 1,500,000
LIFO Reserve at Jan. 1
600,000
LIFO Reserve at Dec. 31
900,000
Krandall uses the last in, first out (LIFO) inventory cost flow assumption. The tax rate is 40%. If Krandall used first in, first out (FIFO) instead of LIFO and paid any additional tax due, its assetstoequity ratio would be closest to:
A) 3.73
B) 4.18
C) 4.06
Your answer: A was incorrect. The correct answer was C) 4.06
With FIFO instead of LIFO:
Inventory would be higher by $900,000, the amount of the ending LIFO reserve.
Cumulative pretax income would also be higher by $900,000, so taxes paid would be higher by 0.40($900,000) = $360,000. Therefore cash would be lower by $360,000.
Cumulative retained earnings would be higher by (0.60)($900,000) = $540,000.
So assets under FIFO would be $11,800,000 + $900,000 $360,000 = $12,340,000 and equity would be $1,000,000 + $1,500,000 + $540,000 = $3,040,000. The assetstoequity ratio would be $12,340,000 / $3,040,000 = 4.06. |
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发表于 2013-4-8 16:43
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