Yarnco,Inc Inventories Required:
A

Essay

Yarnco,Inc.is primarily a diversified North American producer and processor of multi-filament polyester and nylon yarns,including specialty yarns with enhanced performance characteristics.The Company manufactures partially oriented,textured,dyed,twisted and beamed polyester yarns as well as textured nylon and nylon covered spandex products.Refer to the excerpts of the 2015 Yarnco,Inc.Annual Report.All questions relate to 2015 unless stated otherwise.Assume a 35% corporate tax rate where necessary.
Yarnco, Inc.
Consolidated Statement of Operations
$\begin{array}{lrr}&\text { Fiscal Years Ended }\\&\text { June 24, } & \text {June 25, } \\\text { (\$ in thousands) } & \underline{2015} &{\underline{2014}} \\\text { Net sales } & \$ 690,308 & \$ 738,665 \\\text { Cost of sales } & 652,743 & 696,055 \\\text { Selling, general, and administrative expenses } & 44,886 & 41,534 \\\text { Provision for bad debts } & 7,174 & 1,256\\\text { Interest expense } & 25,518 & 19,266 \\\text { Interest income } & (3,187) & (6,320) \\\text { Other (income) expense, net } & (2,576) & (1,466) \\\text { Equity in (earnings) losses of unconsolidated affiliates } & 4,292 & (825) \\\text { Restructuring recoveries } & (157) & (254) \\\text { Write down of long-lived assets } & 16,731 & 2,366 \\\text { Write down of investment in equity affiliate } & 84,742 & \\\text { Loss from earlv extinguishment of debt } & -- & 2.949\\\text { Loss from continuing operations before income taxes and }\\\text { extraordinary item } & (139,858) & (15,896) \\\text { Income tax expense (benefit) } & (22,088) & (1,170)\\\text { Loss from continuing operations before extraordinary item }&(117,770) & (14,726) \\\text { Income (loss) from discontinued operations, net of tax }& 1,465 & 360\\\text { Net Loss }&\$(116,305)&\$(14,366)\end{array}$
Inventories.The Company utilizes the last-in,first-out ("LIFO")method for valuing certain inventories representing 38.6% and 38.2% of all inventories at June 24,2015,and June 25,2014,respectively,and the first-in,first-out ("FIFO")method for all other inventories.Inventories are valued at lower of cost or market including a provision for slow moving and obsolete items.Market is considered net realizable value.Inventories valued at current or replacement cost would have been approximately $8.2 million and $7.3 million in excess of the LIFO valuation at June 24,2015,and June 25,2014,respectively.The Company did not have LIFO liquidations during fiscal year 2015 and fiscal year 2014.The Company maintains reserves for inventories valued utilizing the FIFO method and may provide for additional reserves over and above the LIFO reserve for inventories valued at LIFO.Such reserves for both FIFO and LIFO valued inventories can be specific to certain inventory or general based on judgments about the overall condition of the inventory.General reserves are established based on percentage markdowns applied to inventories aged for certain time periods.Specific reserves are established based on a determination of the obsolescence of the inventory and whether the inventory value exceeds amounts to be recovered through expected sales prices,less selling costs;and,for inventory subject to LIFO,the amount of existing LIFO reserves.The total inventory reserves on the Company's books,including LIFO reserves,at June 24,2015 and June 25,2014 were $15.7 million and $10.7 million,respectively.The following table reflects the composition of the Company's inventory as of June 24,2015 and June 25,2014: $\begin{array}{lrr}\text { (\$ in thousands) } & \text { June } \mathbf{2 4 , 2 0 1 5} & \text { June 25, 2014 } \\\text { Raw materials and supplies } & \$ 47,201 & \$ 48,594 \\\text { Work in process } & 7,573 & 10,144 \\\text { Finished goods } & 69,353 & 57,280 \\&\$124,127&\$116,018\end{array}$
Required:
a.What amount of inventory is on the balance sheet?
b.Compute Yarnco's cost of goods sold using FIFO instead of LIFO.
c.Compute the amount of the cumulative tax deferral resulting from LIFO existing at the end of 2015.
d.Compute how the use of LIFO affects Yarnco's book value (common stockholders' equity)at the end of 2015.
e.Compute the inventory turnover ratio to approximate physical unit flow for 2015.Show your work.