Analyzing Etl'ects or ens-.5: ......, .,-_ s ,, , , Hormel Foods Corporation provided the following footnote in its 2006 lO-K report: Change in Accounting Principle: In the first Quarter of fiscal 2006. the company changed its method of accounting for the materials portion of turkey products and substantially all inventoriable expenses, pack- ages. and supplies that had previously been accounted for utilizing the last-in ï¬rst-out (LIFO) method to the first-in ï¬rst-out [FIFO] method. As a result, all inventories are now stated at the lower of cost. determined on a FIFO basis, or market. The change is preferable because it provides a more meaningful presentation of the company's ï¬nancial position as it values inventory in a manner that more closely approximates current Cost: it provides a consistent and uniform costing method across the companyâ€™s operations; FIFO inventory values better represent the underlying commercial substance of selling the oldest products first: it is the prevalent method used by other entities within the company's industry; and it enhances the comparability of the financial statements with those of our industry peers. As required by US. generally accepted accounting principles, the change has been reï¬‚ected in the consolidated statements of financial position, consolidated statements of operations, and consolidated statements of cash ï¬‚ows through retrospective application of the FIFO method. Inventories as of the beginning of ï¬scal 2005 were increased by the LIFO reserve ($36.7 million), and shareholdersâ€™ investment was increased by the after-tax effect ($23.0 million). Previously reported net earnings for fiscal years 2005 and 2004 were increased by $1.1 million and $1.9 million, respectively. Required: Â£1. Hormelâ€™s 2005 10K reports a L did this accounting method change 15. What were Hormelâ€™s stated reasons for the change? 6- What effect did this change likely have on 2006 net income? 0â€™- Can you think of any possible motivations for this change in accounting method other than those provided by management? [F0 reserve in the amount of $38.5 million. What dollar effect have on total assets? retained comings? income tax liabilities? HOHMEL Fl NYSE :: HI
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