Question

Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $72,051 million and $55,583 million respectively in 2015.

Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as a result, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market.

a. Compute gross profit margin for 2015.
Round answer to one decimal place (ex: 0.2345 = 23.5%)
Answer%

b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment?
Round answer to one decimal place (ex: 0.2345 = 23.5%)
Answer

c. At the end of the year, Marathon’s LIFO reserve was $684 million. If the company had used FIFO, what would the inventory valuation charge have been?
$Answer million

Computing Straight-Line and Double-Declining-Balance Depreciation
On January 2, 2016, Fischer Company purchases a machine that manufactures a part for one of its key products. The machine cost $264,600 and is estimated to have a useful life of six years, with an expected salvage value of $22,500.

Compute depreciation expense for 2016 and 2017 for the following depreciation methods.
a. Straight-line.
b. Double-declining balance.

	2016	2017
Straight-line	Answer	Answer
Double-declining	Answer	Answer

Answer 1

a.

			USD
Revenue			72051
Cost of sales			55583
Gross profit			16468
Gross Profit Margin			22.9%

b.

			USD
Revenue			72051
Cost of sales			55238
Gross profit			16813
Gross Profit Margin			23.3%

	2016	2017	2018	2019	2020	2022
Straight-line	40350	40350	40350	40350	40350	40350
Double-declining
Depreciation Rate		1/useful life *100 = (1/6) * 100 = 16.67%
Double-declining balance formula = 2 X Cost of the asset X Depreciation rate
		33.33%
	264600
2016	264600	88200	176400
2017	176400	58800	117600
2018	117600	39200	78400
2019	78400	26133.33	52266.67
2020	52266.67	17422.22	34844.44
2021	34844.44	11614.81	23229.63