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(Solved) Analyzing Etl'ects or ens-.5: ......, .,-_ s ,, , , Hormel Foods Corporation provided the following footnote in its 2006 lO-K report: Change in...


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 first-out (LIFO) method to the first-in first-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 financial position as it values inventory in a manner that more closely approximates current Cost: it provides a consistent and uniform costing method across the company’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 reflected in the consolidated statements of financial position, consolidated statements of operations, and consolidated statements of cash flows through retrospective application of the FIFO method. Inventories as of the beginning of fiscal 2005 were increased by the LIFO reserve ($36.7 million), and shareholders’ 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: £1. Hormel’s 2005 10K reports a L did this accounting method change 15. What were Hormel’s stated reasons for the change? 6- What effect did this change likely have on 2006 net income? 0’- 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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