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    Financial Statement Analysis with FIFO/LIFO Considerations

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    Your company is considering the possible acquisition of ABC Company. Financial statements of ABC Company follow.

    Balance Sheet.
    2004 2003
    Assets
    Current assets:
    Cash $64,346 $11,964
    Accounts receivable less allowance
    of $750 for doubtful accounts $99,021 $83,575
    Inventories, FIFO $63,414 $74,890
    Prepaid expenses $834 $1,170
    Total Current Assets $227,615 $171,599
    Investments and other assets $379 $175
    Property, plant, and equipment:
    Land and land improvements $6990 $6400
    Buildings $63,280 $59,259
    Machinery and Equipment $182,000 $156,000
    $252,270 $221,659
    Less: accumulated depreciation $110,000 $98,000
    Net property, plant, and equip $142,270 $123,659
    Total Assets $370,264 $295,433

    Liabilities and Stockholders' Equity
    Currentl liabilities:
    Accounts payable $32,730 $26,850
    Federal income taxes $5,300 $4,800
    Accured liabilities $30,200 $24,500
    Current portion of long term debt $5,500 $5,500
    Total current liabilities $73,730 $61,650
    Long term debt $76,750 $41,900
    Other long term liabilities $5,700 $4,300
    Deferred federal income taxes $16,000 $12,000
    Total liabilities $172,180 $119,850
    Stockholders' equity:
    Capital stock $44,000 $43,500
    Retained earnings $154,084 $132,083
    Total Stockholders equity $198,084 $175,583
    Total liabilities and stockholders equity $370,264 $295,433

    Statement of income.
    2004 2003 2002
    Revenues $578,530 $523,249 $556,549
    Cost and Expenses:
    Cost of products sold $495,651 $457,527 $482,358
    Selling, general, and admininstrative $35,433 $30,619 $29,582
    Interest and debt expense $4,308 $3,951 $2,630
    $535,392 $492,097 $514,570
    Income before income taxes $43,138 $31,152 $41,979
    Provision for income taxes $20,120 $12,680 $17,400
    Net income $23,018 $18,472 $24,579
    Net income per share $2.27 $1.85 $2.43

    Partial footnotes: Under the LIFO method, inventores have been reduced by approximately $35,300 and $41,100 at December 31, 2004 and 2003, respectively, from current cost, whichwold be reported under the first in, first out method.
    The effective tax rates were 36.6%, 30.7%, and 31.4%, respectively, for the years ended December 31, 2004, 2003, and 2002.

    a. Compute the following for 2004, without considering the LIFO reserve:
    1. Days' sales in inventory
    2. Merchandise inventory turnover
    3. Inventory turnover in days
    4. Operating cycle
    5. Working capital
    6. Current ratio
    7. Acid test ratio
    8. Cash ratio
    9. Debt ratio
    10. Debt/equity ratio
    11. Times interest earned
    12. Net profit margin
    13. Total asset turnover
    14. Return on assets
    15. Return on total equity
    b. Compute teh ratios above considering the LIFO reserve.
    c. Comment on the apparent liquidigy, debt, and profitability, considering both sets of ratios.

    © BrainMass Inc. brainmass.com October 9, 2019, 8:44 pm ad1c9bdddf
    https://brainmass.com/business/inventory/financial-statement-analysis-with-fifo-lifo-considerations-161059

    Solution Preview

    Please find attached, a formatted MS Excel spreadsheet containing calculations, descriptions, as well as notes for the financial ratios listed below.

    If I might be of further assistance to you in the future, feel free to contact me.

    Balance Sheets with LIFO consideration
    Your company is considering the possible acquisition of ABC Company.  Financial statements of ABC Company follow.

    Balance Sheet.
                                                     2004 2003
    Assets
      Current assets:
          Cash $64,346 $11,964
          Accounts receivable less allowance
             of $750 for doubtful accounts 99,021 83,575
          Inventories, FIFO                                63,414 74,890
          Prepaid expenses 834 1,170
             Total Current Assets 227,615 171,599
          Investments and other ...

    Solution Summary

    This posting contains a formatted MS Excel spreadsheet which performs an in-depth study on the financial Statement of ABC Company, with FIFO/LIFO considerations.

    $2.19