Financial Accounting
Module 4 Cases
Oktay Urcan
Question 1
Refer to the 2022 annual report of Samsung Electronics Co., Ltd. Using the
information in the statements of financial position, statements of profit or loss,
and the excerpts of the notes provided below, please answer the following
questions.
1. What is the amount of trade receivables as of December 31, 2022, that
Samsung Electronics does not expect to collect?
Loss allowance (note 7, table A): 312,221 million Korean Won
Samsung Electronics - Accounts Receivable
Question 1
Samsung Electronics Co., Ltd., 2022
Question 1
2. What is the amount of trade receivables written off in 2022?
Receivables written off (note 7, table B): 3,557 million
Korean Won
Samsung Electronics - Accounts Receivable
Question 1
Samsung Electronics Co., Ltd., 2022
Question 1
3. Suppose that during 2022 Samsung Electronics has
collected 150,000,000 million Korean Won worth of trade
receivables. What is your estimate of the amount of credit sales
that Samsung Electronics has recognized in fiscal year 2022?
(Hint: Use the movement in gross trade receivables to estimate
credit sales.)
Samsung Electronics - Accounts Receivable
Question 1
Gross Trade Receivables (T/R)
BB: 41,250,034 (note 7, table A)
EB: 36,238,032 (note 7, table A)
EB (Gross T/R) = BB (Gross T/R) + Credit Sales – Collections – Write-Offs
36,238,032 = 41,250,034 + Credit Sales – 150,000,000 – 3,557
Credit Sales = 144,991,555 million Korean Won
Samsung Electronics - Accounts Receivable
Question 1
Samsung Electronics Co., Ltd., 2022
Question 1
Samsung Electronics Co., Ltd., 2022
Question 1
4. Suppose that in 2022 Samsung Electronics was considering recording a
higher (than currently) recorded provision for impairment of trade receivables
by 13,000 million Korean Won. How would the following financial reporting
items have changed had Samsung Electronics taken the additional charge of
13,000 million Korean Won? (Ignore any income tax effects.)
Total assets as of December 31, 2022: Lower by 13,000 million
Net income for fiscal 2022: Lower by 13,000 million
Samsung Electronics - Accounts Receivable
Question 2
Please consider the excerpts from Marathon Petroleum
Corporation’s annual report for fiscal year 2022 below and
answer the following questions.
1. What inventory cost flow assumption(s) does Marathon
Petroleum Corporation (Marathon) use to determine the cost of
inventories?
Primarily LIFO
Marathon Petroleum - Inventory
Question 2
Notes to Consolidated Financial Statements
2. Summary of Principal Accounting Policies
Inventories – Inventories are carried at the lower of cost or market value.
Cost of inventories is determined primarily under the LIFO method. Costs
for crude oil, refinery feedstocks, and refined product inventories are
aggregated on a consolidated basis for purposes of assessing if the LIFO cost
basis of these inventories may have to be written down to market value.
Marathon Petroleum Corporation, 2022
Question 2
2. What is the value of inventory write-downs in fiscal year
2022?
$0 million
Marathon Petroleum - Inventory
Question 2
Marathon Petroleum Corporation, 2022
Marathon Petroleum Corporation, 2022
Question 2
3. If the company recorded inventory write-downs, what would be the impact in
2022 on the balance sheet and on the income statement?
Balance sheet: Decreases inventory account
Income statement: Increases cost of goods sold or creates an inventory
write-down expense
Marathon Petroleum - Inventory
Question 2
4. What is the amount of inventory purchases in fiscal year
2022?
End. inventory = Beg. inventory + Inventory purchases –
COGS – Inventory write-downs
8,827 = 8,055 + Inventory purchases – 151,671 – 0
Inventory purchases = $152,443 million
Marathon Petroleum - Inventory
Question 2
Marathon Petroleum Corporation, 2022
Marathon Petroleum Corporation, 2022
Question 3
Please consider the excerpts from the Kroger Co. annual report
for fiscal year 2022 below and answer the following questions.
1. Which cost flow assumption does Kroger use to value its
inventory?
Inventories are principally stated on a LIFO basis (89% in
2022). The remaining inventory is valued using FIFO.
The Kroger Co. - Inventory
Question 3
The Kroger Co.
Notes to Consolidated Financial Statements
(All amounts are in millions except per share amounts.)
Note 1 - Accounting Policies
Inventories – Inventories are stated at the lower of cost (principally on a last-
in, first-out “LIFO” basis) or market. In total, approximately 89% of inventories
in 2022 and 91% of inventories in 2021 were valued using the LIFO method.
The remaining inventories, including substantially all fuel inventories, are
stated at the lower of cost (on a FIFO basis) or net realizable value.
Replacement cost was higher than the carrying amount by $2,196 at January
28, 2023, and $1,570 at January 29, 2022.
The Kroger Co., 2023
Question 3
2. Suppose Kroger had used FIFO as a cost flow assumption
for all of their inventories. Would the book value of inventories
at January 28, 2023, be higher than, lower than, or the same
as the amount currently recorded? If different, by how much?
Higher by $2,196 million
The Kroger Co. - Inventory
Question 3
Note 1 - Accounting Policies
Inventories
Replacement cost was higher than the carrying amount by $2,196 at January
28, 2023, and $1,570 at January 29, 2022. The Company follows the Link-
Chain, Dollar-Value LIFO method for purposes of calculating its LIFO charge or
credit. During 2020, the Company had a LIFO liquidation primarily related to
pharmacy inventory. The liquidated inventory was carried at lower costs
prevailing in prior years as compared with current costs. The effect of this
reduction in inventory decreased “Merchandise costs” by approximately $76,
$58 net of tax.
The Kroger Co., 2023
Question 3
3. What is the amount of COGS if inventory purchases is
$125,000 million in the year ended January 28, 2023?
End. inventory = Beg. inventory + Inventory purchases –
COGS – Inventory write-downs
(9,756 – 2,196) = (8,353 – 1,570) + 125,000 – COGS – 0
COGS = $124,223 million
The Kroger Co. - Inventory
Question 3
The Kroger Co., 2023
Question 3
4. What is a LIFO liquidation? When was the last time Kroger
had a material LIFO liquidation? What was the effect of that
LIFO liquidation on Kroger’s cost of products sold and reported
profit?
The Kroger Co. - Inventory
Question 3
There is a LIFO liquidation when a company sells more units
of inventory than it buys and as a result has to sell old
inventory layers, valued at a lower price.
The last time Kroger had a material LIFO liquidation was in
fiscal year 2020. This liquidation decreased merchandise
costs by approximately $76 million and increased reported
profit by $58 million, net of tax.
The Kroger Co. - Inventory
Question 3
Note 1 - Accounting Policies
Inventories
Replacement cost was higher than the carrying amount by $2,196 at January
28, 2023, and $1,570 at January 29, 2022. The Company follows the Link-
Chain, Dollar-Value LIFO method for purposes of calculating its LIFO charge or
credit. During 2020, the Company had a LIFO liquidation primarily related to
pharmacy inventory. The liquidated inventory was carried at lower costs
prevailing in prior years as compared with current costs. The effect of this
reduction in inventory decreased “Merchandise costs” by approximately $76,
$58 net of tax.
The Kroger Co., 2023
Question 3
5. If Kroger had used FIFO as a cost flow assumption for all of its inventories,
recalculate the value of COGS on a FIFO basis.
COGS FIFO = COGS LIFO – change in LIFO reserve
COGS FIFO = $124,223 (from question 3.3) – (2,196 – 1,570)
COGS FIFO = $123,597 million
The Kroger Co. - Inventory
Question 3
The Kroger Co., 2023
References
The Kroger Co. (2023). Notice of 2023 annual meeting of shareholders, 2023 proxy
statement, and 2022 annual report on Form 10-K.
[Link]
Marathon Petroleum Corporation. (2022). 2022 annual report.
[Link]
2_MPC_Annual_Report_and_10K.pdf
Samsung Electronics Co., Ltd. (2022). 2022 business report for the year ended
December 31, 2022.
[Link]
[Link]
