JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the companyadopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer hasbeen added to its LIFO inventory in each of the years the method has been used. The company's inventory turnoverratio has averaged 4.5 in recent years. Management attempts to maintain a stable level of inventory at each store;the growth in inventory has been due to new stores being opened each year. In 20X1, the board of directorsapproved an incentive program that pays managers a sizable bonus in each year that certain performance targetsare met. For 20X2, targeted earnings per share are $3.35. In an effort to track progress toward meeting this target,management produced the following income statement for the first nine months of 20X2.JKW CorporationIncome StatementJanuary 1-September 30, 20X2Sales$13,284,000Cost of goods soldGross marginOperating expenses7,970,4005,313,6002,391,1202,922,480Income before taxesIncome tax expense613,721$ 2,308,759Net incomeEarnings per share (1,000,000 shares outstanding)2.31Based on past history, management expects 30% of the company's annual sales to take place in the fourth quarter.Operating expenses and gross margin are expected to remain at 18% and 40% of sales, respectively, for theremainder of the year. The company's tax rate is 21%. 2. Assume that you are JKW's independent auditor, and your analysis indicates that projected earnings per sharewill fall short of the bonus target. In the past, JKW's managers have used aggressive (and possibly unethical)behavior to achieve salary bonus targets. You suspect that the managers intend to deplete old LIFO layersdeliberately in the fourth quarter. To help you detect such behavior, calculate the amount of the LIFO liquidationthat would be needed in the fourth quarter to hit the EPS target in 20X2.

Name: JKW Corporation (a fictional company) has been selling plumbing suppl
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Description: JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the companyadopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer hasbeen added to its LIFO inventory

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JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in each of the years the method has been used. The company's inventory turnover ratio has averaged 4.5 in recent years. Management attempts to maintain a stable level of inventory at each store; the growth in inventory has been due to new stores being opened each year. In 20X1, the board of directors approved an incentive program that pays managers a sizable bonus in each year that certain performance targets are met. For 20X2, targeted earnings per share are $3.35. In an effort to track progress toward meeting this target, management produced the following income statement for the first nine months of 20X2. JKW Corporation Income Statement January 1-September 30, 20X2 Sales Cost of goods sold Gross margin Operating expenses $13,284,000 7,970,400 5,313,600 2,391,120 2,922,480 Income before taxes Income tax expense 613.721

JKW Corporation (a fictional company) has been selling plumbing supplies since 1981. In 2003, the company adopted the LIFO method of valuing its inventory. The company has grown steadily over the years and a layer has been added to its LIFO inventory in each of the years the method has been used. The company's inventory turnover ratio has averaged 4.5 in recent years. Management attempts to maintain a stable level of inventory at each store; the growth in inventory has been due to new stores being opened each year. In 20X1, the board of directors approved an incentive program that pays managers a sizable bonus in each year that certain performance targets are met. For 20X2, targeted earnings per share are $3.35. In an effort to track progress toward meeting this target, management produced the following income statement for the first nine months of 20X2. JKW Corporation Income Statement January 1-September 30, 20X2 Sales Cost of goods sold Gross margin Operating expenses $13,284,000 7,970,400 5,313,600 2,391,120 2,922,480 Income before taxes Income tax expense 613.721

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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