Chapter 5 HW - Homework PDF

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11.

The relevant data required to convert LIFO to “as-if” FIFO are the LIFO Reserve and change in LIFO Reserve, which is $178,144 and ($2,532) [(178,144 – 180,676]. The LIFO Reserve represents the additional inventory allocation to cost of goods sold since the firm’s use of LIFO accounting. Had FIFO been used instead of LIFO, the December 31, 2108 inventory balance reported on the balance sheet would be higher by $178,144. With the LIFO conformity requirement that LIFO must be used on the firm’s financial statements if used on the firm’s tax return, the LIFO Reserve multiplied by the expected future statutory tax rate presents the taxes deferred by the use of LIFO. Thus, Hershey has deferred $37,410 ($178,144 x 21%) in income taxes. This represents the adjustment for the tax payable. The change in the LIFO Reserve represents the current year impact between LIFO and FIFO. Since the use of LIFO accounting by HSY, the company has reported an additional $178,144 in cost of goods sold. The change in the LIFO Reserve, ($2,532), suggests that costs of goods sold in 2018 would have higher (not lower, as the change in the LIFO Reserve is negative). The resulting lower 2018 tax expense for the higher cost of goods sold is $532. Lastly, the adjustment for the prior year cost of goods sold is reflected in the retained earnings, net of taxes or $142,734. In journal entry format, the adjustments are: Inventory Taxes payable Cost of goods sold Tax expense Retained earnings

Dr $178,144

Cr $37,410

2,532 532 142,734 $180,676 $180,676

12.

a. The estimated amounts of unrecognized asset and liability are:

1 2 3 4 5 6 7 8 9 10 11 12 13 14

Payment 294,191 296,579 294,941 295,290 290,980 290,980 290,980 290,980 290,980 290,980 290,980 290,980 290,980 150,557

PV 287,101 275,649 261,073 248,935 233,621 222,496 211,901 201,810 192,200 183,048 174,331 166,030 158,124 77,919 2,894,238

b. The reported total liabilities were $824,179. Adding in the estimated additional $2,894,238 would more increase liabilities by over 300%! 13.

a. Utilizing the IRR function (internal rate of return) function on Excel for the stream (–427, 34, 35, 36 for 20 periods, 35) yields an implied interest rate of 6.3% percent. b. The estimated amounts of unrecognized asset and liability are: 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18

Payment 227 214 193 183 175 175 175 175 175 175 175 175 175 175 175 175 175 115

PV 200 196 167 149 135 127 120 113 107 101 95 90 84 80 75 71 67 41 2,038

Costco’s operating leases if effectively capitalized would increase its assets and liabilities $2,038 or approximately $2 billion....