Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In 2011, our industry experienced more normalized price inflation of approximately 3.1 percent overall despite price deflation for certain chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sales data are presented below. Inventory Item A Inventory Item B Transaction Units Unit Cost Units Unit Cost Beginning inventory 150 $ 7.1 150 $ 7.1 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 6.1 4.1 Sales, April 28 380 380 Required: 1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods. 2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?

Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In 2011, our industry experienced more normalized price inflation of approximately 3.1 percent overall despite price deflation for certain chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sales data are presented below. Inventory Item A Inventory Item B Transaction Units Unit Cost Units Unit Cost Beginning inventory 150 $ 7.1 150 $ 7.1 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 6.1 4.1 Sales, April 28 380 380 Required: 1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods. 2. Between FIFO and LIFO, which method is preferable in terms of (a) net income and (b) income taxes paid (cash flow)?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter23: Other Topics In Working Capital Management

Section: Chapter Questions

Problem 2Q

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Pool Corporation, Incorporated, reported in its recent annual report that "In 2010, our industry experienced some price deflation.... In 2011, our industry experienced more normalized price inflation of approximately 3.1 percent overall despite price deflation for certain chemical products." This suggests that in some years Pool's overall inventory costs rise, and in some years they fall. Furthermore, in many years, the costs of some inventory items rise while others fall. Assume that Pool has only two product items in its inventory this year. Purchase and sales data are presented below. Transaction Inventory Item A Inventory Item B Units Unit Cost Units Unit Cost Beginning inventory 150 $ 7.1 150 Purchases, February 7 190 9.1 190 Purchases, March 16 210 10.1 210 $ 7.1 6.1 4.1 Sales, April 28 380 380 Required: 1. Compute cost of goods sold for each of the two items separately using the FIFO and LIFO inventory costing methods. 2. Between FIFO and LIFO, which method is preferable in…
The Jimenez Corporation’s forecasted 2011 financial statements follow, along withsome industry average ratios.a. Calculate Jimenez’s 2011 forecasted ratios, compare them with the industry averagedata, and comment briefly on Jimenez’s projected strengths and weaknesses.b. What do you think would happen to Jimenez’s ratios if the company initiatedcost-cutting measures that allowed it to hold lower levels of inventory andsubstantially decreased the cost of goods sold? No calculations are necessary:Think about which ratios would be affected by changes in these twoaccounts. Jimenez Corporation: Forecasted Balance Sheet as of December 31, 2011AssetsCash $ 72,000Accounts receivable 439,000Inventories 894,000Total current assets $1,405,000Fixed assets 431,000Total assets $1,836,000Liabilities and EquityAccounts and notes payable $ 432,000Accruals 170,000Total current liabilities $ 602,000Long-term debt 404,290Common stock 575,000Retained earnings 254,710Total liabilities and equity…
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