Problem - The following is the selected Balance Sheet and Income Statement for Company X. The company used LIFO inventory method.
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2017
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2016
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Selected Balance Sheet Data:
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Merchandise inventories
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$24,000
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$22,000
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Total current assets
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41,000
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39,000
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Total assets
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85,000
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75,000
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Total current liabilities
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25,000
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24,000
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Total long-term debt
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30,000
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30,000
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Selected Income Statement Data:
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Net sales
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$360,000
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$320,000
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Cost of merchandise sold
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295,000
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260,000
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Net income
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4,200
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4,500
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Net income per common share
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$2.60
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$2.80
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Effective tax rate
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40%
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40%
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Selected partial note with 2017 financial statements: Inventories have been reduced by $10,000 and $7,000 at December 31, 2017, and December 31, 2016, respectively, from amounts which would have been reported under the FIFO method (which approximated current cost). Had the company valued all of its inventories under the FIFO method, net income would have been approximately $5,600 in 2017 and $5,601 in 2016?
Required - Compute the following ratios for 2017 from the financial statements:
- Days' Sales in Inventory
- Working Capital.
- Current Ratio
- Debt Ratio
a) Compute the following ratios for 2017, using LIFO disclosure:
b) Compute the following ratios for 2017, using FIFO disclosure:
c) Comment on the difference in the indicated liquidity and debt between the ratios computed under LIFO and the ratios computed under FIFO.