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 |
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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