front 1 The Golson Company uses the periodic inventory system. Information for 2021 is as follows: Sales $1,325,000 Beginning inventory 340,000 Purchases 600,000 Purchase returns 6,000 Ending inventory 370,000 Cost of goods sold for 2021 is: a.$761,000 b.$594,000 c.$570,000 d.$564,000 | back 1 D |
front 2 The Golson Company uses the periodic inventory system. Information for 2021 is as follows: Sales $1,325,000 Beginning inventory 340,000 Purchases 600,000 Purchase returns 6,000 Cost of goods sold 564,000 Ending inventory for 2021 is: a.$761,000 b.$594,000 c.$570,000 d.$370,000 | back 2 D |
front 3 Barrington Corporation uses the periodic inventory system. At December 31, 2021, the end of the company’s fiscal year, a physical count of inventory revealed an ending inventory balance of $80,000. The following items were not included in the physical count: Merchandise shipped to a customer on 12/28 f.o.b. destination (merchandise arrived at customer’s location on 1/5/19) $3,000 Merchandise shipped to a customer on 12/29 f.o.b. shipping point (merchandise arrived at customer’s location on 1/2/19) 1,500 Merchandise purchased from a supplier, shipped f.o.b. destination on 12/26, arrived on January 4, 2022 6,000 Barrington’s 2021 ending inventory should be: a.$80,000 b.$89,000 c.$83,000 d.$87,750 | back 3 C |
front 4 Covington Mattress buys mattresses from Simpson Manufacturing. Covington purchased mattresses from Simpson on August 16 and received an invoice for $12,000 with payment terms of 2/10, n/30. Covington uses the net method to record purchases. Covington should record the purchase at: a.$11,880 b.$11,760 c.$12,000 d.$12,240 | back 4 B |
front 5 Covington Mattress buys mattresses from Simpson Manufacturing. Covington purchased mattresses from Simpson on August 16 and received an invoice for $12,000 with payment terms of 2/10, n/30. Covington uses the gross method to record purchases. Covington should record the purchase at: a.$11,880 b.$11,760 c.$12,000 d.$12,240 | back 5 C |
front 6 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): 160 units at $50 Sales for the year totaled 1,080 units, leaving 40 units on hand at the end of the year. Ending inventory using the FIFO method is: a.$1,300 b.$2,000 c.$1,414 d.$1,200 | back 6 D |
front 7 Fulbright Corp. uses the periodic inventory system. During its first year of operations, Fulbright made the following purchases (listed in chronological order of acquisition): 160 units at $50 Sales for the year totaled 1,080 units, leaving 40 units on hand at the end of the year. Ending inventory using the LIFO method is: a.$1,300 b.$2,000 c.$1,414 d.$1,200 | back 7 B |
front 8 Which of these is not a factor that motivates companies to choose one method over the other? a.How closely reported costs reflect the actual physical flow of inventory b.The timing of reported income and income tax expense c.How well costs are matched with associated revenues d.To make it easier for managers to maximize their own personal benefits rather than those of the company or its external constituents | back 8 D |
front 9 Doyle Corp. adopted the LIFO inventory method in 2021, its first year. Doyle disclosed that if FIFO had been used, inventory at the end of 2021 would have been $36 million higher than the inventory determined using the LIFO method. Assuming Doyle’s income tax rate is 40%: a.Its reported cost of goods sold for 2021 would have been $21.6 million higher if it had used FIFO rather than LIFO for its financial statements b.Its reported net income for 2021 would have been $21.6 million higher if it had used FIFO rather than LIFO for its financial statements c.Its reported net income for 2021 would have been $36 million higher if it had used FIFO rather than LIFO for its financial statements d.Its reported cost of goods sold for 2021 would have been $36 million higher if it had used FIFO rather than LIFO for its financial statements | back 9 B |
front 10 For its 2021 fiscal year, the Hendricks Chemical Company reported sales of $3,500,000, cost of goods sold of $1,400,000, and net income of $140,000. The company’s gross profit ratio for the year is: a.60% b.40% c.4% d.None of these answers is correct | back 10 A |
front 11 Granger Clothing reported the following in its 2021 financial statements: Sales $1,050,000 Cost of goods sold: Inventory, January 1 $ 205,000 Net purchases 640,000 Cost of goods available for sale 845,000 Inventory, December 31 215,000 Cost of goods sold 630,000 Gross profit $ 420,000 Granger’s 2021 inventory turnover ratio is: a.2.93 b.5.00 c.3.00 d.2.00 | back 11 C |
front 12 On December 31, 2021, the Burroughs Company adopted the dollar-value LIFO inventory method. Inventory at the end of 2021 for its only inventory pool was $600,000. At the end of 2022, inventory at year-end cost is $806,400 and the cost index is 1.05. Inventory at the end of 2022 at dollar-value LIFO cost is: a.$750,000 b.$768,000 c.$806,400 d.$776,400 | back 12 D |
front 13 The following information pertains to one item of inventory of the Forge Company: Per unit Cost $270 Replacement cost 225 Selling price 292 Costs to sell 52 Applying the lower of cost or net realizable value rule, this item should be valued at: a.$225 b.$240 c.$270 d.$292 | back 13 B |
front 14 Which of the following statements is not true concerning using lower of cost or net realizable value for U.S. GAAP and IFRS purposes? a.U.S. GAAP allows for reversals of inventory write-downs if circumstances indicate the write-down is no longer appropriate b.U.S. GAAP allows the LCNRV rule to be applied to individual items, categories, or entire inventory c.IFRS requires LCNRV be applied to individual items except in certain circumstances d.IFRS allows for reversals of inventory write-downs if circumstances indicate the write-down is no longer appropriate | back 14 A |
front 15 The following information pertains to one item of inventory of the Forge Company: Per unit Cost $270 Replacement cost 225 Selling price 292 Costs to sell 52 Normal profit margin 31 Applying the lower of cost or market rule, this item should be valued at: a.$225 b.$240 c.$270 d.$292 | back 15 A |
front 16 The records of Oregon Timber, Inc., revealed the following information related to inventory destroyed in a fire: Inventory, beginning of period $ 900,000 Purchases to date of fire 480,000 Net sales to date of fire 1,350,000 Gross profit ratio 30% The estimated amount of inventory destroyed by the fire is: a.$975,000 b.$ 30,000 c.$435,000 d.All of these answer choices are incorrect | back 16 C |
front 17 The Bowden Company uses the retail inventory method. The following information is available for the year: Cost Retail Inventory (beginning of year) $ 780,000 $ 1,300,000 Net purchases for the year 2,804,000 3,670,000 Net markups 150,000 Net markdowns (90,000) Net sales 3,690,000 Applying the average cost retail inventory method, Bowden’s inventory at the end of the year is estimated at: a.$954,784 b.$790,318 c.$938,000 d.$810,700 | back 17 A |
front 18 The Bowden Company uses the retail inventory method. The following information is available for the year: Cost Retail Inventory (beginning of year) $ 780,000 $ 1,300,000 Net purchases for the year 2,804,000 3,670,000 Net markups 150,000 Net markdowns (90,000) Net sales 3,690,000 Applying the conventional retail inventory method, Bowden’s inventory at the end of the year is estimated at: a.$954,784 b.$790,318 c.$938,000 d.$810,700 | back 18 C |
front 19 On January 1, 2021, the Bowden Corporation adopted the dollar-value LIFO retail inventory method. Below is information related to inventory: Cost Retail Beginning inventory $ 60,000 $ 94,000 Purchases during the year 201,500 310,000 Annual net sales 300,000 The retail price index at the end of 2021 was 1.04. Ending inventory at dollar-value LIFO cost is: a.$ 65,000 b.$ 67,600 c.$ 64,056 d.$100,000 | back 19 C |
front 20 In 2021, the Beldre Company switched its inventory method from average cost to FIFO. Inventories at the end of 2020 were reported in the balance sheet at $55 million. If the FIFO method had been used, 2020 ending inventory would have been $50 million. Ignoring the effect of income taxes, the adjustment to 2021’s beginning retained earnings would be: a.$0 b.$50 million increase c.$5 million increase d.$5 million decrease | back 20 D |
front 21 Hightower Co. uses a periodic inventory system. Beginning inventory on January 1, 2021, was overstated by $49,000, and ending inventory on December 31, 2021, was understated by $79,000. These errors were not discovered until 2022. As a result, Hightower’s cost of goods sold for 2021 was: a.Understated by $128,000 b.Overstated by $128,000 c.Overstated by $30,000 d.Understated by $30,000 | back 21 B |
front 22 On August 15, 2021, Pesky Corporation signed a purchase commitment to purchase inventory for $300,000 on or before February 20, 2022. Pesky’s fiscal year-end is December 31. The contract was exercised on February 3, 2022, and the inventory was purchased for cash at the contract price. On the purchase date of February 3, the market price of the inventory was $315,000. The market price of the inventory on December 31, 2021, was $270,000. The company uses a perpetual inventory system. How much loss on purchase commitment will Pesky recognize in 2021? a.$45,000 b.$30,000 c.$15,000 d.None | back 22 B |
front 23 Inventory refers to assets that are: | back 23 intended to sell in production for sale used in production of goods to be sold |
front 24 What is merchandising inventory? | back 24 goods that are purchased that go from wholesaler to retailer. |
front 25 What costs does merchandising inventory include? | back 25 purchase price plus any cost necessary to reach place it will be sold at. |
front 26 What is manufacturing inventory? | back 26 goods that are produced to be sold to anyone. |
front 27 What does manufacturing inventory include? | back 27 raw materials, works in progress, and finished goods. |
front 28 Overhead includes | back 28 utility costs, depreciation, and anything else that cannot be directly traced. |
front 29 Are raw materials, works in progress, and finished goods disclosed? | back 29 Yes. |
front 30 What is a perpetual inventory system? | back 30 it continually adjusts inventory if there is a change in: purchase, sale, and return and continually adjusts COGS if there is a change in: sale and returns. |
front 31 What is a periodic inventory system? | back 31 adjusts inventory and COGS at end of each reporting period. |
front 32 How does a periodic inventory system determine COGS? | back 32 Beg Inv+ Net purchases= goods available for sale - ending inventory= COGS |
front 33 A perpetual inventory system allows management to: | back 33 know goods on hand at any date and know # of items sold during a period |
front 34 A periodic inventory system records: | back 34 purchases, returns, discounts, and freight in. |
front 35 A perpetual inventory system tracks: | back 35 inventory quantity and cost. |
front 36 A periodic inventory system tracks only: | back 36 quantities |
front 37 Which one is more expensive, perpetual or periodic inventory system? | back 37 Perpetual |
front 38 Whats the journal entry to adjust inventory, close purchases and COGS? | back 38 Debit: COGS Inventory (ending) Credit: Inventory (beginning) Purchases |
front 39 What are the physical units in inventory? | back 39 items in possession of company, goods in transit, goods on consignment, and anticipated sales returns. |
front 40 The goods in transit depend on | back 40 ownership of goods. |
front 41 Describe FOB Shipping Point. | back 41 Title is transferred at shipping point when seller hands goods over at Fedex (example) |
front 42 Who is responsible for shipping costs at FOB Shipping Point? | back 42 Buyer |
front 43 Describe FOB destination | back 43 title is transferred when goods are delivered |
front 44 Who is responsible for shipping costs at FOB destination? | back 44 Seller |
front 45 Describe goods on consginment. | back 45 Transferor has legal title (consignor) and transfer goods to the consignee to sell. |
front 46 If no one buys the goods on consignment: | back 46 goods are returned to consignor. |
front 47 If someone does buy the goods on consignment: | back 47 selling price (less commission and expenses) is remitted to consignor. |
front 48 How does inventory reporting work with goods on consignment? | back 48 Consignors hold it until consignee sells it. The only time a sale is recorded is when title transfers to third party. |
front 49 Describe what happens to the accounts when a customer does make a return: | back 49 COGS decreases Sales revenue decreases AR decreases Inventory increases |
front 50 The COGS anticipated to be returned is included in the | back 50 ending inventory. |
front 51 What affects net purchases? | back 51 Product costs like freight charges, insurance costs, and unloading & packing. But the main ones are freight costs and returns & discounts. |
front 52 With freight in costs, how does it affect perpetual inventory system? | back 52 It is added to inventory account. |
front 53 With freight in costs, how does it affect periodic inventory system? | back 53 Freight costs are added to temporary account called freight in then later added to purchases. |
front 54 How does freight out costs affect perpetual and periodic inventory systems? | back 54 They are not included in cost of inventory, instead treated as COGS or an operating expense. |
front 55 How do returns affect perpetual inventory system? | back 55 Reduces inventory and AP. If its cash, it would increase cash. |
front 56 How do returns affect periodic inventory system? | back 56 purchase returns account accumulates all returns. The returns are subtracted from total purchases to calculate net purchases. |
front 57 When it comes to discounts, what accounts do periodic and perpetual systems use? | back 57 periodic uses purchases account and perpetual uses inventory account. |
front 58 Example of gross method that made discount: | back 58 AP debited Inventory and cash credited |
front 59 Example of gross method that did not make discount: | back 59 AP debited Cash credited |
front 60 Example of net method that made discount: | back 60 AP debited Cash credited |
front 61 Example of net method that did not make discount: | back 61 AP and discounts lost debited Cash credited |
front 62 We know beginning inventory plus net purchases = goods available for sale. How do we allocate this to ending inventory and COGS? | back 62 Use the specific identification method: average cost, FIFO, LIFO. |
front 63 The specific identification method matches | back 63 each unit sold during period with actual cost. This assumes which units of inventory have been sold and which ones have not. |
front 64 Do companies have to record actual amounts of inventory sold? | back 64 No they can record what's been assumed. |
front 65 What's average cost flow assumption? | back 65 A mixture of goods available for sale. |
front 66 Describe average cost flow with a periodic inventory system. | back 66 Its calculated at end of period with Cost of goods available for sale divided by # of those units. |
front 67 Describe average cost flow with perpetual inventory sysem. | back 67 Its calculated each time inventory is purchased with the amount determined by summing previous inventory balances with cost of new purchase included divided by # of those units. |
front 68 Describe FIFO cost flow method. | back 68 This is first in, first out. It assumes units first acquired are sold first. Ending inventory is the most recent units. |
front 69 How does FIFO affect periodic and perpetual inventory systems? | back 69 They will have matching amounts. |
front 70 Describe LIFO cost flow method. | back 70 This is last in, first out. It assumes units last acquired are sold first. Ending inventory is first units. |
front 71 How does LIFO affect periodic and perpetual inventory systems? | back 71 They will have different amounts. |
front 72 With FIFO periodic what's accounted for first then next? | back 72 COGS first then ending inventory. |
front 73 For LIFO periodic what's accounted for first then next? | back 73 Ending inventory then COGS. |
front 74 Where does average weighted cost fall? | back 74 In between FIFO and LIFO amounts. |
front 75 During rising costs, FIFO results in | back 75 lower COGS and higher ending inventory than LIFO. |
front 76 During declining costs, FIFO results in | back 76 higher COGS and lower ending inventory than LIFO. |
front 77 Are these cost flow methods GAAP approved? | back 77 Yes. |
front 78 Do you have to apply one cost flow method to the entire inventory? | back 78 No, but you have to disclose that. |
front 79 What all is factored in decisions for a cost flow method? | back 79 Inventory cost flow assumption, depreciation method, pension assumptions, and other choices. |
front 80 What type of inventories does FIFO best? | back 80 Physical flow. |
front 81 What type of inventories does average cost suit best? | back 81 Mixture inventories. |
front 82 When a unit cost of inventory changes, it effects | back 82 net income and amount of taxes paid. |
front 83 Companies will choose LIFO when prices are rising to reduce | back 83 taxes. |
front 84 When costs rise and inventory quantities remain the same: | back 84 LIFO produces higher COGS and that equals a lower net income. Lower taxable income is reported and lower taxes will be paid. |
front 85 What's the LIFO confirmatory rule that the IRS requires? | back 85 If a company uses LIFO for x, then it has to use LIFO for y. |
front 86 What's a LIFO reserve? | back 86 a contra account that serves as a difference between LIFO and internal records. |
front 87 LIFO reserve equals | back 87 Inventory LIFO for external purposes minus inventory FIFO or average amount for internal. |
front 88 What are some reasons to stay internal and not LIFO? | back 88 High record keeping costs for LIFO, bonus or profit plans that calculate net income without using LIFO, using FIFO or average for pricing decisions. |
front 89 What are LIFO liquidations? | back 89 old cost is matched with current selling prices because leftover inventory is outdated. |
front 90 If costs increase, LIFO liquidations will produce | back 90 higher net income |
front 91 To liquidate LIFO the journal entry is: | back 91 COGS debited LIFO reserve credited |
front 92 Why are inventory levels so closely monitored? | back 92 To make sure there's enough available to sustain operations and to keep costs low. |
front 93 What are the conflicts with maintaining inventory levels? | back 93 It can be expensive to hold inventory and customer demand can get high. |
front 94 What are some tools to balance inventory levels? | back 94 computerized systems, outsourcing, and JIT. |
front 95 What is JIT? | back 95 where the manufacturer will coordinate with supplier who immediately acquires raw materials to start production process. |
front 96 What are the advantages with JIT system? | back 96 Low inventory balance to maintain and customers demands are quickly met. |
front 97 What are two ratios used to monitor inventory? | back 97 Gross profit and inventory turnover. |
front 98 Whats the formula for gross profit? | back 98 Gross profit divided net sales. |
front 99 What does gross profit ratio measure? | back 99 how much of each sales dollar is available to cover expenses (excluding COGS) to still make a profit. |
front 100 The higher the gross profit ratio, | back 100 the higher the markup achieved. |
front 101 A declining gross profit ratio means | back 101 company is unable to offset rising costs with corresponding increases in selling prices and sales prices are declining without a commensurate reduction in costs. |
front 102 Whats the formula for inventory turnover | back 102 COGS divided by average inventory |
front 103 What does inventory turnover ratio measure | back 103 number of times average inventory balance is sold in a period |
front 104 The higher the inventory turnover ratio, the | back 104 more efficiently a company manages inventory |
front 105 What are some techniques to simplify LIFO? | back 105 LIFO inventory pools and dollar value LIFO method |
front 106 What is LIFO inventory pooling? | back 106 Putting inventory units together based on physical similarities. Purchases are considered to be made at same time at the same cost. |
front 107 In LIFO inventory pooling, individual unit costs are converted to | back 107 an average cost. |
front 108 If quantity of ending inventory pool increases, | back 108 the beginning inventory is added to the single layer added during period at the average cost of its pool |
front 109 What is dollar value LIFO? | back 109 A comprise of layers of dollar values from different years. Instead of physical qualities, then are grouped based on economic similarities. |
front 110 What do you use to apply dollar value LIFO? | back 110 A cost index that will deflate inventory amounts by any increase in prices so beginning inventory and ending inventory are measured at same price level. |
front 111 Formula for cost index in layer year is | back 111 cost in layer year divided by cost in base year |
front 112 What are the steps to setting up a DVLIFO: | back 112 1) Convert ending inventory to base year costs (ending inventory divided by cost index) 2) identify layers of ending inventory created each year (#1's amount minus beginning inventory) 3) Restate each layer using cost index (beginning amount times CI plus #2 layer amount times CI) |
front 113 What are some advantages with DVLIFO? | back 113 simplifies record keeping, minimizes probability of liquidation of LIFO inventory layers, acquisition of new items is viewed as replacement of dollar value of old items. |
front 114 Is LIFO acceptable for IFRS? | back 114 No. |
front 115 What are some reasons a company would sell inventory for less than the cost? | back 115 damage, physical deterioration, obsolescence, changes in price levels |
front 116 When a company sells inventory for less than the cost what does this call for? | back 116 An inventory write down. |
front 117 What does an inventory write down do? | back 117 Reduces inventory and net income. |
front 118 What are the two options to do an inventory write down? | back 118 Lower of cost or net realizable value (LCNRV) or lower of cost or market (LCM) |
front 119 LCNRV is used for companies that use | back 119 FIFO, average cost, anything besides LIFO or retail inventory method |
front 120 How does LCNRV affect the financial statements? | back 120 reduces inventory and reduces net income. |
front 121 LCM is used for companies that use | back 121 LIFO or retail inventory method. |
front 122 How does LCM affect the financial statements? | back 122 reduces inventory and reduces net income. |
front 123 What's the formula for NRV? | back 123 Estimated selling price- cost of completion, disposal, and transportation |
front 124 What is NRV? | back 124 The amount the company expects to collect in cash (realize) from selling inventory. |
front 125 At the end of the year the company will compare cost of ending inventory to NRV. If NRV< Cost then | back 125 adjusting entry is needed to reduce inventory from its already recorded purchase cost to the lower NRV. |
front 126 At the end of the year the company will compare cost of ending inventory to NRV. If NRV> Cost then | back 126 no adjusting entry is needed. Inventory will remain at recorded purchase cost. |
front 127 LCNRV can be applied to: | back 127 individual items, categories, and entire inventory |
front 128 The normal adjusting entry for LCNRV is: | back 128 COGS debited Inventory credited |
front 129 If the amount is large and unusual the adjusting entry for LCNRV is: | back 129 Loss debited |
front 130 Who permits reversals on LCNRV, GAAP or IFRS? | back 130 IFRS. |
front 131 GAAP applies LCNRV to individual items, categories and entire inventory. What does IFRS apply it to? | back 131 Normally just individual items. Sometimes categories. |
front 132 By definition, whats the market? | back 132 the current replacement cost. |
front 133 The market must be in between | back 133 the ceiling and the floor. |
front 134 If something is the ceiling it means that | back 134 its greater than NRV. |
front 135 If something is the floor it means that | back 135 its lower than NRV. |
front 136 Whats the formula for market ceiling? | back 136 selling price- estimated selling costs |
front 137 Whats the formula for market floor? | back 137 NRV- normal profit margin |
front 138 The normal adjusting entry for LCM is | back 138 COGS debited Inventory credited |
front 139 If there is a large and unusual amount, the adjusting entry for LCM is | back 139 Loss debited |
front 140 Why would someone use gross profit method to estimate inventory? | back 140 if inventory has been lost, destroyed, stolen to avoid expense of physical count of inventory auditors test budgeting and forecasting |
front 141 Whats the formula for gross profit method to estimate inventory? | back 141 Ending inventory + Net purchases = Goods available for sale - COGS (estimated) = Ending Inventory (estimated) |
front 142 In the gross profit method formula, what is COGS based on? | back 142 Historical net sales, COGS, and gross profit. |
front 143 How do you calculate COGS in the gross profit method formula? | back 143 Net sales times gross profit % |
front 144 Gross profit method is ONLY a | back 144 estimate |
front 145 What are some warnings to gross profit method? | back 145 - rely on the ratio - accuracy can help if you pool products - cost flow should be implicit stated - suspected theft or spoilage would require an adjustment |
front 146 What is the retail inventory method perfect for? | back 146 high volume retailers selling many items at low unit prices. |
front 147 Retail in retail inventory method means _____ and this finds ____. | back 147 current selling price, COGS |
front 148 Whats the first step to the retail inventory method? | back 148 Estimate amount of ending inventory at retail prices. |
front 149 How do you find ending inventory (at retail) in retail inventory method? | back 149 Goods available for sale (at retail) minus Sales (at retail) |
front 150 After you found ending inventory (at retail) in the retail inventory method, then what do you do? | back 150 Multiply that by current cost to retail percentage to estimate ending inventory at cost. |
front 151 How do you find the cost to retail percentage? | back 151 goods available for sale at cost divided by goods available for sale at retail. |
front 152 What must be included in ending inventory for retail inventory method? | back 152 Net markups and net markdowns. |
front 153 A markup cancellation reduces additional markup but not below | back 153 original selling price. |
front 154 A markdown cancellation reduces a markdown but not above | back 154 original selling price. |
front 155 Where do you include net markups and markdowns in the formula? | back 155 underneath beginning inventory |
front 156 What does the conventional retail method exclude? | back 156 markdowns from cost to retail % |
front 157 For the LIFO retail method, an increase in inventory results in | back 157 ending inventory that includes beginning inventory as well as additional layers |
front 158 For the LIFO retail method, a decrease in inventory results in | back 158 layers liquidated |
front 159 LIFO retail method assumes prices remained stable. How do they find the "layer"? | back 159 The layer is amount between beginning inventory and ending inventory. It'll either decrease or increase. |
front 160 When calculating cost to retail %, freight in is | back 160 added to cost amount |
front 161 When calculating cost to retail %, purchase returns is | back 161 deducted from cost and retail |
front 162 When calculating cost to retail %, purchase discounts is | back 162 deducted from cost |
front 163 When calculating cost to retail %, abnormal shortages is | back 163 deducted from cost and retail |
front 164 After calculating cost to retail %, net sales is | back 164 deducted from goods available |
front 165 After calculating cost to retail %, normal shortages is | back 165 deducted from goods available |
front 166 In dollar LIFO retail method, when ending inventory is greater than beginning inventory, | back 166 a new LIFO layer is added or increase in retail prices. |
front 167 Each layer in the dollar LIFO retail method carries | back 167 a retail price index and cost to retail % |
front 168 In the dollar LIFO retail method, where are the layers added | back 168 to ending inventory |
front 169 FIFO, average, or anything besides LIFO is changed | back 169 retrospectively |
front 170 What are the steps to adjusting FIFO and average retrospectively? | back 170 1) Revise statements 2) Adjust accounts 3) Disclose notes |
front 171 When you need to change to LIFO, what do you do? | back 171 Start using LIFO from that point on. |
front 172 Why is changing LIFO method not retrospective? | back 172 its impossible to calculate income effects on prior years. |
front 173 When you switch to LIFO, you have to include a disclose notes that will include: | back 173 nature of change, effect on income, and why retrospective is impossible |
front 174 Why might there be an overstatement/understatement of ending inventory? | back 174 - mistake in physical count or pricing - mistake in recording purchases |
front 175 If you find an inventory error in the same period: | back 175 original entry is reversed and appropriate entry is recorded |
front 176 If you find an inventory error in a subsequent period: | back 176 the previous years are retrospectively restated, incorrect balances are corrected, correction of RE is reported as prior period adjustment to beginning balance in SE, add disclosure note. |
front 177 Inventory errors affect | back 177 COGS, net income, and RE |
front 178 If beginning inventory or net purchases is overstated, | back 178 COGS is overstated |
front 179 If ending inventory is overstated, | back 179 COGS is understated |
front 180 If inventory error is discovered 2 years later, | back 180 no adjusting entry is required, but add disclosure note |
front 181 What are purchase commitments? | back 181 Contracts that obligate company to purchase specific amount of merch at specific price on specific date |
front 182 Purchase commitments protects | back 182 buyer against increase in purchase price and provides supply of product |
front 183 On date of purchase commitment, inventory is recorded at | back 183 lower contract price or market price |
front 184 If purchase price decreases before agreement, | back 184 loss on purchase commitment is recorded |