Cruz Company uses LIFO for inventory costing and reports the following financial

Question

Cruz Company uses LIFO for inventory costing and reports the following financial data. It also recomputed inventory and cost of goods sold using FIFO for comparison purposes. 2017 2016 LIFO inventory $ 190 $ 140 LIFO cost of goods sold 770 710 FIFO inventory 260 165 FIFO cost of goods sold 725 — Current assets (using LIFO) 250 220 Current liabilities 170 150 1. Compute its current ratio, inventory turnover, and days' sales in inventory for 2017 using (a) LIFO numbers and (b) FIFO numbers. (Round your answers to 1 decimal place.)

Explanation / Answer

LIFO Current Assets = LIFO Inventory + Other Current Assets

250 = 190 + Other Current Assets

Other Current Assets = 60

Therefore, FIFO Current Assets = FIFO Inventory + Other Current Assets

FIFO Current Assets(2017) = 260 + 60 = 320

Similarly FIFO Current Assets(2016) = 165 + 80 = 245

1.

Current Ratio

LIFO(2017) = Current Assets/Current Liabilities = 250/170 = 1.5

FIFO(2017) = Current Assets/Current Liabilities = 320/170 = 1.9

2.

Inventory turnover

LIFO 2017 = COGS/Average Inventory = 770/[(190+140)/2] = 4.7

FIFO 2017 = COGS/Average Inventory = 725/[(260+165)/2] = 3.4

3.

Days' sales in inventory

LIFO 2017 = 365/Inventory Turnover Ratio = 365/4.7 = 77.7 Days = 78 days

FIFO 2017 = 365/Inventory Turnover Ratio = 365/3.4 = 107.4 Days = 108 Days

2017 2016 LIFO Inventory 190 140 LIFO COGS 770 710 FIFO Inventory 260 165 FIFO COGS 725 - Current Assets LIFO 250 220 Current Liabilities 170 150

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