LIFO/FIFO (Please help! Studying for CPA exam)

Discussion in 'Exams and Studying' started by sjames72, Nov 29, 2008.

  1. sjames72

    sjames72

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    Hi guys! I'm studying for the CPA exam and cannot figure out this problem.

    This is about Kroger Company.

    Balance Sheet ($ in millions)

    February 3, 2007 January 28. 2006

    Current assets:
    Inventories $4,609 $4,486


    Income Statement ($ in millions)

    For the Year Ended
    February 3, 2007 January 28, 2006
    Net Sales $66,111 $60,553
    Cost of goods sold 50,115 45,565
    Profit $15,996 $14,988

    The significant accounting policies note disclosure contained the following:
    Inventories (in part)
    Inventories are stated at the lower of cost (principally on a last-in, first-out "LIFO" basis) or market. In total, approximately 98% of inventories were valued using the LIFO method. Cost for the balance of the inventories, including substantially all fuel inventories, was determined using the first-in, first-out ("FIFO") method. Replacement cost was higher than the carrying amount by $450 million at February 3, 2007 and $400 million at January 28, 2006.

    1) Assuming that year-end replacement cost figures approximate FIFO inventory values, estimate what the beginning and ending inventory balances for the fiscal year ended 2/3/07 would have been if Kroger had used FIFO for all its inventories.

    2) Estimate the effect on cost of goods sold (that is, would it have been graeater or less and by how much?) for the fiscal year ended 2/3/07 if Kroger had used FIFO for all of its inventories?

    Thanks in advance,

    Sarah
     
    sjames72, Nov 29, 2008
    #1
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