XYZ Company uses the LIFO method for inventory costing. The company reported total inventory of $441 million on their balance sheet as of 12/31/2012. It reported a LIFO reserve of $72 million at the beginning of the 2012 fiscal year and a LIFO reserve of $86 million at the end of the 2012 fiscal year. Cost of goods sold reported on the 2012 income statement was $2,900 million.
1. What would the company have reported for inventory at 12/31/2012 on its balance sheet had the company used FIFO to account for inventory costs?
2. What would the company have reported for cost of goods sold for 2012 had the company used FIFO to account for inventory costs?
3. Which inventory method, FIFO or LIFO, provides a better (more informative) measure for inventory on the balance sheet during the normal inflationary period and why?
4. Which inventory method, FIFO or LIFO, provides a better measure for cost of goods sold on the income statement during the normal inflationary period and why?
5 Compute the inventory turnover ratio for 2012 by using the reported numbers (use the ending inventory balance for your computation)
6. Recompute the inventory turnover ratio for 2012 by using the more informative measures.