Question

Required information [The following information applies to the questions displayed below.) You have been given responsibility for overseeing a bank's small business loans division. The bank has included loan covenants requiring a minimum current ratio of 3.20 in all small business loans. When you ask which inventory costing method the covenant assumes, the previous loans manager gives you a blank look. To explain to him that a company's Inventory costing method is important, you present the following balance sheet information. (a) Current assets other than inventory $ 16 Inventory Other (noncurrent) assets Total assets Current liabilities Other (noncurrent) liabilities Stockholders' equity Total liabilities and stockholders' equity 5 (c) You ask the former loans manager to find amounts for ( . . and (d) assuming the company began the year with 8 units of inventory at a unit cost of $15, then purchased 11 units at a cost of $16 each, and finally purchased 9 units at a cost of $20 each. A year-end inventory count determined that 8 units are on hand

Answer 1

Page No 0 $15 $ 16 28 78 20 Answer Paradise Conventory Systems Inventory uplig method Particular Quantity Coxif per unit. Total.conf Beginning inventory $ 120 Purchase $ 176 Purchase $20 # 180 Goods available for sale $ 476 T Ending inventory I coot of goods sold Inventory - Average weighted cont method Particular Quantity cost per unit Total corf Beginning inventory $15 $120 Purchase $16 $146 Purchase $20 $180 Goods available for sale $446 - Ending inventory (8) (136) cost of goods sold ($ 160) * 316 LA $340)

$176 28 1 ao $356 Page No ③ Linventory - telefon melked Particular Quantity cost per unit | Total cost Beginning inventory $15 $100 Purchase $16 Purchase $180 Goods avcilable for sale $476 Ending inventory ($180) cost of goods sold Amount Por ca) using FIFO & then calculate lb) through ts) Amount Inventory $ 160 Total assets 1295 Total liabilities & stockholders equily $295 Stockholders equily $ 191 Total assets = $16 + $119 + $160 . . = $295. ... Stockholder's equity = 295 – 48 - 56 = $191

Page.no @ @ Amounts for cas oning weighted averige s then calculate by thighly Amount Inventory $ 136 Total assets $ 241 Total liabilities & rofachholdens equity $ 2! Stockholder's equity & 167 Total assets = 136 +16+ 119 = $271 stockholder's equity = 271-48-56 = $ 167 torent for (a) using 4F0, then calculate (6) through (d Amount Inventory $120 Total assets $955 Total liabilities z ostockholder's equilig $955 Stockholder's equity $151 Total assets = 120 + 16 +119 = $255 Stockholder's equity = 255 -- 48-56

Page. No FIFO - couvrent oratio - - 16+160 - 48 = 3.67 = 3,17 Weighted average - Current LIFO - Current vratio = oratio = 167 136 48 16+100 0.83 48 Current ratio FIFO weighted average LIFO 3.67 3.17 2.83 o current ratio No FIFO weighted average LIFO Yes in FIFO, As minimum. current satio of 3.20 % maintained In ceighted average , As minimum Ceverent oratio of 3'20s not achieved In LFO, As minimum Current oratio of 3.20 is not achieved.