Question

# Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and...

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%)

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%)

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?

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

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

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