Question

ABC Inc. provided the following footnote in its annual report:

Inventories are stated at the lower of cost or market. The cost of inventories has been determined using last in first out (LIFO) method. Cost of goods sold under LIFO costing were $22.2 billion for 2011 and ending inventory under LIFO was $1.3 billion. Inventory in 2010 under LIFO costing was $1.2 billion. The LIFO Reserve account carried a credit balance of $0.8 billion in 2011 and $0.6 billion in 2010.

Compute the following: (please show all steps!)

1 FIFO ending inventory balance at year end 2010.

2 FIFO ending inventory balance at year end 2011.

3 FIFO cost of goods sold for year-end 2011.

4 Inventory turnover under LIFO costing for 2011.

5 Inventory turnover under FIFO costing for 2011.

Answer 1

1	2010
	FIFO inventory = LIFO inventory + LIFO reserve
		= 1.2 + 0.6
		1.8
2	2011
	FIFO inventory = LIFO inventory + LIFO reserve
		= 1.3 + 0.8
		2.1
3	COGS (FIFO) = COGS (LIFO) - (LIFO reserve at the end - LIFO reserve at the beginning of period)
		= 22.2 - (0.8 - 0.6)
		22
4	Inventory turnover = Cost of goods sold / Average inventory
	LIFO
	= 22.2 / ((1.2+1.3) / 2)
	17.76
5	Inventory turnover = Cost of goods sold / Average inventory
	FIFO
	= 22 / ((1.8+2.1) / 2)
	11.45