Exam 6: Inventory, Accounts Payable, and Long-Term Assets

Central Supply purchased a new printer for $67,500. The printer is expected to operate for nine (9) years, after which it will be sold for salvage value (estimated to be $6,750). How much is the first year's depreciation expense if the company uses the double-declining-balance method?

Dow Chemical included the following information in footnotes to its 2016 Form 10-K: 2016 Restructuring On June 27, 2016, the Board of Directors of the Company approved a restructuring plan that incorporates actions related to the recent ownership restructure of Dow Corning Corporation ("Dow Corning"). These actions, aligned with Dow's value growth and synergy targets, will result in a global workforce reduction of approximately 2,500 positions, with most of these positions resulting from synergies related to the Dow Corning transaction. These actions are expected to be substantially completed by June 30, 2018. As a result of these actions, the Company recorded pretax restructuring charges of $449 million in the second quarter of 2016 consisting of severance charges of $268 million, asset write-downs and write-offs of $153 million and costs associated with exit and disposal activities of $28 million. a. Reconcile the various parts of Dow Chemical's "Restructuring charges" of $449 million. b. How should Dow Chemical report the restructuring charges in its income statement and on its balance sheet? c. The SEC has expressed concern about abuses surrounding restructuring charges. What is the nature of the SEC's concerns?

InterTech Corporation recorded pretax restructuring charges of $1,033.5 million in 2017. The charges consisted of asset write-downs of $681 million, costs associated with exit or disposal activities of $99 million, and employee severance costs of $253.5 million. The company paid $108 million cash to settle these restructuring charges during the year (2017). At year end, the restructuring accrual associated with these charges was:

Dow Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be:

The percent used up ratio indirectly measures the likelihood of future capital expenditures that the company will have to make.

Following are selected disclosures from Cabela's Inc. (an outdoor adventure superstore): Property and equipment consisted of the following at the years ended: Required: a. Compute the PPE turnover for 2016 (Total revenue in 2016 is $4,129,359 thousand). Does the level of its PPE turnover suggest that Cabela's is capital intensive? (Hint: The median PPE turnover for all publicly traded companies is approximately 1.3.) b. Cabela's reported depreciation expense of $150,163 thousand in 2016. How much of this related to Land? How much of this expense related to Construction in progress? Explain. c. Assuming that Cabela's uses straight-line depreciation, estimate the useful life of its depreciable PPE assets. d. By what percentage are Cabela's assets "used up" at year-end 2016? What implication does the assets-used-up ratio have for forecasting Cabela's cash flows?

Aiello, Inc. had the following inventory in fiscal 2016. The company uses the FIFO method of accounting for inventory. Beginning Inventory, January 1, 2016: 130 units @ $15.00 Purchase 200 units @ $18.00 Purchase 50 units @ $13.50 Purchase 110 units @ $15.75 Ending Inventory, December 31, 2016: 120 units The company's cost of goods sold for fiscal 2016 is:

The 2016 financial statements of Willamette Valley Vineyards include the following footnote: Note 4. Property and Equipment a. Estimate the useful life on average for Willamette's depreciable assets at the end of fiscal 2016. What assets does a wine producer such as Willamette Valley Vineyards own that would explain the useful life you calculated? b. Assume that on January 1, 2017 the company determined that a building with a net book value of $950,000 had a fair value of $400,000. How would this affect the company's balance sheet and income statement in 2017?

The 2016 financial statements for Leggett & Platt, Inc., report the following information: Which of the following estimates the property and equipment's percent-used-up at December 31, 2016?

Leggett and Platt reported total inventory of $519.6 million on their 2016 balance sheet along with a LIFO reserve of $33.8 million. What would the company have reported on its balance sheet for inventory if it had used the FIFO method of accounting for inventory?

The 2016 financial statements of Willamette Valley Vineyards, Inc. include the following footnote: The average useful life of Willamette's depreciable assets at the end of fiscal 2016 is:

Next year, Chemical Corporation plans to build a laboratory dedicated to a special project. The company will not use the laboratory after the project is finished. Under GAAP, this laboratory should be expensed.

The cash conversion cycle is defined as: Days sales outstanding - Days inventory outstanding + Days payable outstanding

An asset is impaired when the asset's carrying value is:

In times of falling prices, choosing LIFO over FIFO as an inventory cost method would affect the financial statements as follows:

The asset side of the 2016 balance sheet for Leggett & Platt follows. The company reported cost of sales of $2,850.7 million in 2016 and $2,994.0 million in 2015. Use this information to answer the requirements. a. Calculate the common-size amount for inventories for both years and comment on any differences that you note. Given that the company is in the furniture manufacturing industry, does this ratio seem appropriate? b. Compute inventory turnover for both years and interpret any change. At December 31, 2014, Total inventories, net were $481.4 million. c. Leggett & Platt uses LIFO for at least some of its inventory method. What would the company have reported as inventory in 2016 and 2015 if the company had used the FIFO method? (LIFO reserve balances: $33.8 million in 2016; $22.6 million in 2015; and $73.0 million in 2014.) d. Recalculate cost of goods sold (COGS) under the FIFO method. e. Recompute the inventory turnover ratios for 2016 and 2015 under the FIFO method. What difference do you notice between the FIFO-based ratios and the LIFO-based ratios?

Companies using LIFO are required to disclose the amount at which inventory would have been reported had it used FIFO. Similarly, companies using FIFO are required to disclose what their inventory would have been if the company had used LIFO.

LIFO inventory costing yields more accurate reporting of the inventory balance on the balance sheet.

The 2016 financial statement of Willamette Valley Vineyards reported Net revenues of $19,425,412 and Cost of goods sold of $7,204,884. Note 3 to the financial statements reported that Inventories consisted of: The inventory turnover for 2016 was:

CarMax Inc. reports sales of $15,875,118 thousand and cost of sales of $13,691,824 thousand for the year ended February 28, 2017. The gross profit for the year is: