The following information is from the 2009 annual report of American Greetings Corporation (all…

The following information is from the 2009 annual report of American Greetings Corporation (all dollars in thousands).

Feb. 28,
2009

Feb. 29,
2008

Inventories

Finished goods

$232,893

$244,379

Work in process

7,068

10,516

Raw materials and supplies

49,937

43,861

289,898

298,756

Less: LIFO reserve

86,025

82,085

Total (as reported)

$203,873

$216,671

Cost of goods sold

$809,956

$780,771

Current assets (as reported)

$561,395

$669,340

Current liabilities

$343,405

$432,321

The following information comes from the notes to the company"s financial statements.

Finished products, work in process, and raw material inventories are carried at the lower of- cost-or-market. The last-in, first-out (LIFO) cost method is used for approximately 75% of the domestic inventories in 2009 and approximately 70% in 2008. The foreign subsidiaries principally use the first-in, first-out method. Display material and factory supplies are carried at average-cost.

Instructions

(a) Define each of the following: finished goods, work in process, and raw materials.

(b) What might be a possible explanation for why the company uses FIFO for its nondomestic inventories?

(c) Calculate the company"s inventory turnover ratio and days in inventory for 2008 and 2009. (2007 inventory was $182,618.) Discuss the implications of any change in the ratios.

(d) What percentage of total inventory does the 2009 LIFO reserve represent? If the company used FIFO in 2009, what would be the value of its inventory? Do you consider this difference a “material” amount from the perspective of an analyst? Which value accurately represents the value of the company"s inventory?

(e) Calculate the company"s 2009 current ratio with the numbers as reported, then recalculate after adjusting for the LIFO reserve.

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