Selected financial statement information relating to inventories for ARCHERDANIELS MIDLAND (ADM) is given below:
|
1999 |
1998 |
|
|
Cost of goods sold. |
$13,051,306 |
$14,727,670 |
|
Inventory FIFO valuation |
$2,734,054 |
30 Nov |
|
Inventory LIFO valuation |
2,732,694 |
2,562,650 |
ADM accounts for approximately 75% of its inventories using the FIFO method, but accounts for some of its inventories using the LIFO method. Thus, the differences reflected in the above table represent those inventories accounted for using the two methods.
1. Compute ADM s number of days sales in inventory for 1999 using (a) the FIFO valuation for inventory and (b) the LIFO valuation for inventory. Are the differences significant enough to concern you?
2. Suppose that ADM purchases its inventory with the terms net 30 days. That is, ADM s creditors expect payment in 30 days. Is ADM going to have a cash flow problem?