04 May WHAT METHOD(S) DOES THE COMPANY USE TO DETERMINE THE COST OF ITS INVENTORY?
Refer to the financial statements of Rona Inc. for 2009 (in Appendix A of your text
book or download the annual report from the Cases section of Connect or from Rona
Inc.s website at www.rona.ca).
Required:
a. Use the companys balance sheet to determine the amounts in the
accounting equation.
b. What is the amount of the companys current liabilities on December 27,
2009? Are current assets sufficient to cover current liabilities?
c. Has financing for the companys investments in assets primarily come
from liabilities or from shareholders equity?
d. Ronas largest expense for its 2009 fiscal year was Cost of Sales, but Cost
of Sales does not appear as a line item in the annual reports income
statement. However, the Management Discussion and Analysis that
accompanies the financial statements mentions that Ronas gross margin
for fiscal 2009 was 27.36 percent. Calculate the actual dollar amount of
Cost of Sales for Rona using this information.
e. Calculate the debt-to-assets ratio at December 27, 2009, and December 28,
2008. Based on these calculations, has Ronas financing become more or
less risky over the two years?
f. Calculate the asset turnover ratio for the December 2009 and 2008 year
ends. Ronas total assets at the end of fiscal 2007 were $2,459,138
(thousand). Based on these calculations, has Rona used its assets more or
less efficiently in 2009 year end than in the 2008 year end? 3
g. Assume that Rona experienced no shrinkage in the most current year.
Using the balance sheet and income statement, estimate the amount of
purchases in the year ended December 27, 2009.
h. Does the company follow the lower of cost and net realizable value rule?
What method(s) does the company use to determine the cost of its
inventory? Describe where you found this information.
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