if karp had used fifo instead of lifo the amount of cost of goods sold reported by k 599770
John Martinson, CFA, is an equity analyst with a large pension fund. His supervisor, Linda Packard, asks him to write a report on Karp Inc. Karp prepares its financial statements in accordance with U.S. GAAP. Packard is particularly interested in the effects of the company’s use of the LIFO method to account for its inventory. For this purpose, Martinson collects the financial data presented in Exhibits F and G.
Balance Sheet Information (US$ millions)
As of 31 December |
2009 |
2008 |
Cash and cash equivalents |
172 |
157 |
Accounts receivable |
626 |
458 |
Inventories |
620 |
539 |
Other current assets |
125 |
65 |
Total current assets |
1,543 |
1,219 |
Property and equipment, net |
3,035 |
2,972 |
Total assets |
4,578 |
4,191 |
Total current liabilities |
1,495 |
1,395 |
Long-term debt |
644 |
604 |
Total liabilities |
2,139 |
1,999 |
Common stock and paid in capital |
1,652 |
1,652 |
Retained earnings |
787 |
540 |
Total shareholders equity |
2,439 |
2,192 |
Total liabilities and shareholders equity |
4,578 |
4,191 |
Income Statement Information (US$ millions)
For Years Ended 31 December |
2009 |
2008 |
Sales |
4,346 |
4,161 |
Cost of goods sold |
2,211 |
2,147 |
Depreciation and amortization expense |
139 |
119 |
Selling, general, and administrative expense |
1,656 |
1,637 |
Interest expense |
31 |
18 |
Income tax expense |
62 |
48 |
Net income |
247 |
192 |
Martinson finds the following information in the notes to the financial statements:
- The LIFO reserves as of 31 December 2009 and 2008 are $155 million and $117 million respectively; and
- The effective income tax rate applicable to Karp for 2009 and earlier periods is 20%.
- If Karp had used FIFO instead of LIFO, the amount of inventory reported as of 31 December 2009 would have been closest to:
-
A. $465 million.
B. $658 million.
C. $775 million.