COMPREHENSIVE PROBLEM SOLUTION (Continued)
(c) HARRISEN COMPANY
Adjusted Trial Balance
December 31, 2014
DR. CR.
Cash ……………………………………………………… $ 3,040
Accounts Receivable……………………………… 9,580
Inventory ……………………………………………….. 2,342
Equipment …………………………………………….. 21,000
Accumulated Depreciation
—
Equipment….. $ 1,700
Accounts Payable ………………………………….. 5,880
(d) HARRISEN COMPANY
Income Statement
For the Month Ending December 31, 2014
Sales revenue ……………………………………… $5,860
Less: Sales returns and allowances ……. 180
Net sales …………………………………………….. $5,680
Cost of goods sold ……………………………… 4,098
Gross profit ………………………………………… 1,582
COMPREHENSIVE PROBLEM SOLUTION (Continued)
HARRISEN COMPANY
Balance Sheet
December 31, 2014
Assets
Current assets
Cash ……………………………………………….. $ 3,040
Accounts receivable ………………………… 9,580
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable ……………………………. $ 5,880
Salaries and wages payable …………….. 400
COMPREHENSIVE PROBLEM SOLUTION (Continued)
(e) FIFO Method
Units Unit Cost
Cost of Goods
Available for Sales
Beg. Inventory 3,000 $0.60 $1,800
Dec. 3 purchase 4,000 $0.72 2,880
(f) LIFO Method
Ending Inventory Cost of Goods Sold
Dec. 1
3
,000 X $0.60 = $1,800 Cost of goods available for sale $6,440
BYP 6-1 FINANCIAL REPORTING PROBLEM
(Note: All dollar amounts are in thousands)
(a) Inventories were $71,760 ($42,676 + $29,084) in 2011 and $56,652
($35,416 + $21,236) in 2010.
(b) Inventories increased $15,108 in 2011. Using 2010 as the base year, the
BYP 6-2 COMPARATIVE ANALYSIS PROBLEM
(a) Tootsie Roll Hershey Company
1. Inventory turnover $365,225
($56,652* + $71,760**) ÷ 2
$3,548,896
($648,953 + $533,622) ÷ 2
(b) Generally, companies that are able to keep their inventory at lower
levels and higher turnovers and still satisfy customer needs are the
BYP 6-3 RESEARCH CASE
(a) Companies with slow moving inventory, such as industrial
manufacturers, benefit most from the use of LIFO, because the extended
time that they hold their inventory make them more susceptible to price
changes.
BYP 6-4 INTERPRETING FINANCIAL STATEMENTS
(a) Finished goods are manufactured inventory items that are ready for
resale. Work in process is inventory that has been put into production
(b) American Greetings may use LIFO for U.S. operations because of its
tax advantages. Since many foreign countries do not allow the use of
LIFO, American Greetings may use FIFO for non-domestic inventories.
Using FIFO will result in higher reported profit and inventory values
than LIFO.
(c) 2014 2013
Inventory turnover: $809,956
($216,671+ $203, 873)/ 2 $780,771
($182,618 + $216, 671)/ 2
(d) The LIFO reserve, $86,025, represents 42% of total inventory
($86,025/$203,873 = .42).
Ending inventory using LIFO ………………… $203,873
BYP 6-4 (Continued)
(e) Current ratio:
$561, 395
$343,405 =1.63:1
BYP 6-5 REAL-WORLD FOCUS
Answers will vary depending on the company chosen.
BYP 6-6 DECISION MAKING ACROSS THE ORGANIZATION
(a) 2014 2013 2012
Current ratio $1, 800
$600
= 3.00:1 $1,423
$590
=2.41:1
$1,183
$525
= 2.25:1
(b) The company’s current ratio has increased steadily over this period.
While this might be interpreted as a positive, since it would normally
represent improved liquidity, the company started this period with a
current ratio in excess of 2, thus it already had good liquidity. With its
current ratio now 3 it would appear that the company has too many
funds tied up in current assets. In particular, it would appear that the
company has a surplus of unsold inventory. This is supported by the fact
that inventory as a percent of total assets has increased significantly.
BYP 6-6 (Continued)
(c) The evaluation above suggests that many of the company’s problems
stem from poor inventory management. As the company has grown,
its ability to manage its inventory has declined. This has caused a
(d) The marketing and sales department may well be concerned that a just-
in-time inventory system will result in more stock-outs. The company
already is having stock-out problems, even though it has a lot of
inventory. The company’s current inventory system appears to lack