BYP 6-2 COMPARATIVE ANALYSIS PROBLEM
(a) (1) Inventory turnover:
PepsiCo:
$31,243 ÷
$3,581 + 3,409
= 8.94 times
2
$3,264 + 3,277
(2) Days in inventory:
(b) PepsiCo’s turnover of 8.94 times is approximately 59% higher than Coca–
BYP 6-3 COMPARATIVE ANALYSIS PROBLEM
(a) (1) Inventory turnover:
Amazon:
$54,181 ÷
$6,031 + $7,411
= 8.06 times
2
(2) Days in inventory:
BYP 6-4 REAL-WORLD FOCUS
The following responses are based on the 2013 annual report:
(a) $1,476,000,000, as of July 27, 2013.
BYP 6-5 DECISION MAKING ACROSS THE ORGANIZATION
(a) (1) Sales January 1–March 31 ……………….. $180,000
Cash sales 4/1–4/10 ($18,500 X 40%) … 7,400
(2) Purchases January 1–March 31 ……….. $ 94,000
Cash purchases 4/1–4/10 …………………. 4,200
*(b)
2016
2015
Net sales ……………………………………………….. $600,000 $480,000
Cost of goods sold
Inventory, January 1 ……………………….. 60,000 40,000
Cost of goods purchased ………………… 404,000 356,000
Cost of goods available for sale ………. 464,000 396,000
*(c) Sales …………………………………………………….. $230,000
Less: Gross profit ($230,000 X 33%) ………. 75,900
Cost of goods sold ………………………………… $154,100
BYP 6-6 COMMUNICATION ACTIVITY
MEMO
To: Pamela Barnes, President
From: Student
Re: 2016 ending inventory error
As you know, 2016 ending inventory was overstated by $1 million. Of course,
this error will cause 2016 net income to be incorrect because the ending
inventory is used to compute 2016 cost of goods sold. Since the ending inven–
BYP 6-7 ETHICS CASE
(a) The higher cost of the items ordered, received, and on hand at year–
end will be charged to cost of goods sold, thereby lowering current
year’s income and income taxes. If the purchase at year-end had been
made in the next year, the next year’s cost of goods sold would have
absorbed the higher cost. Next year’s income will be increased if unit
income taxes will increase.
(b) No. The president would not have given the same directive because the
purchase under FIFO would have had no effect on net income of the
current year.
BYP 6-8 ALL ABOUT YOU
Students responses to this question will vary depending on the inventory
fraud they choose to investigate. Here are responses for the two examples
given in the activity.
The fraud at Leslie Fay involved a number of illegal actions, all of which
increased net income. The company intentionally overstated ending inventory,
which has the effect of understating cost of goods sold. It also understated
BYP 6-9 FASB CODIFICATION ACTIVITY
(a) The primary basis of accounting for inventories is cost, which has
been defined generally as the price paid or consideration given to
acquire an asset. As applied to inventories, cost means in principle
the sum of the applicable expenditures and charges directly or
(b) The basis of stating inventories shall be consistently applied and
shall be disclosed in the financial statements; whenever a significant
change is made therein, there shall be disclosure of the nature of the
IFRS EXERCISES
IFRS6-1
Key Similarities are (1) the definitions for inventory are essentially the same,
(2) the guidelines on who owns the goods—goods in transit, consigned
goods, and the costs to include in inventory are essentially accounted for
the same under IFRS and U.S. GAAP; (3) use of specific identification cost
flow assumption, where appropriate.
IFRS6-2
Under IFRS, LaTour’s inventory turnover is computed as follows:
Cost of Goods Sold/Average Inventory
€578/ €154 = 3.75 or approximately 97 days (365 ÷ 3.75).
Difficulties in comparison to a company using U.S. GAAP could arise if the
U.S. company uses the LIFO cost flow assumption, which is prohibited under
IFRS6-3
(a) Louis Vuitton’s Note 1.15 states that inventories are valued using the
weighted average of FIFO methods.