Reserve for possible losses on purchase commitments d. Excess of replacement cost over LIFO cost of basic inventory temporarily liquidated Answer d 5. Which of the following statements is not valid as it applies to inventory costing methods? a. If inventory quantities are to be maintained‚ part of the earnings must be invested (plowed back) in inventories when FIFO is used during a period of rising prices. b. LIFO tends to smooth out the net income pattern‚ since it matches current cost of goods
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would be: dr. Cost of Goods Sold cr. Merchandise inventory. 3) LIFO Method An example of an industry that uses LIFO is the mining industries. Assuming they have a pit‚ they are filling it up with coal they dig up. The first coal they sell will be from the top (last coal put in the pit)‚ and last one sold will be the ones in the bottom (first coal put in the pit)‚ therefore LIFO. There are many other industries with a similar setting where the last one put in would be
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Inventory Systems Summary Week -1 Team B Sarah Elliott‚ Juan Gutierrez‚ Romeo Murillo‚ Emily Sohre QRB 501 May 6‚ 2013 Steve Spencer Inventory Systems Summary Inventory Systems are the software used to plan and track inventory balances and activities (Investopedia‚ 2012). There are many inventory systems‚ which can be used in an organization to track products sold or used. Team B’s team members will describe his or her organization
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only recognized if the asset will have a future economic benefit and has measured reliability. Another difference is in inventory cost- the cost of holding goods in stock. Under IFRS‚ the last-in‚ first-out (LIFO) method for accounting for inventory costs is not allowed. Under U.S. GAAP‚ either LIFO
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describes the effect of LIFO inventory liquidation on its reported profits in 1984. Describe what is meant by LIFO liquidation and how liquidation affects a company’s income statement and balance sheet. If a company decides to perform a LIFO liquidation‚ the old costs will be matched with the current higher sales prices. Thus‚ a cost to using the LIFO liquidation method is higher tax liability if prices have risen since LIFO was adopted. The expected tax advantage of LIFO turns into a disadvantage
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Chapter 3 Overview of Accounting Analysis 1 Preliminary Topics • Institutional Framework of Financial Reporting includes: (1) Income Statement‚ (2) Balance Sheet and (3) Cash Flow Statement. Balance Sheet analysis: Building Blocks of assets‚ liability‚ debt & equity. Equity=Assetsliability. Book value vs. market value of share. • Corporate financial report is prepared on accrual basis rather than cash basis. Accrual implies economic activities rather than true payment and receipts. • A Responsibility
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CHAPTER 7 Inventory LEARNING OBJECTIVES 1. Identify what items and costs should be included in inventory and cost of goods sold. 2. Account for inventory purchases and sales using both a perpetual and a periodic inventory system. 3. Inventory is composed of goods held for sale in the normal course of business. Cost of goods sold is the cost of inventory sold during the period. For a manufacturing firm‚ the three types of inventory are raw materials‚ work in process‚ and
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AC501: Financial Accounting and Reporting Unit 3 Assignment Chapter 7 E7-5 (Recognition of profit for long-Term Contracts) Andre Agassi Construction Company began operations January 1‚ 2008. During the year‚ Andre Agassi Construction entered into a contract with Lindsey Davenport Corp. to construct a manufacturing facility. At that time‚ Agassi estimated that it would take 5 years to complete the facility at a total cost of $ 4‚ 5000‚000. The total contract price for construction of
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method. Appropriate use of the retail inventory method. Markdowns and the conventional retail method. Markups and the conventional retail method. Knowledge of the cost ratio for retail inventory methods. Inventory turnover ratio. Dollar-value LIFO retail method. MULTIPLE CHOICE—Computational Answer a c c d d a a b c No. Description 25. 26. 27. 28. 29. 30. 31. 32. 33. Value inventory at LCM. Relative sales method of inventory valuation. Entry for purchase commitment
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re-establishing manufacturing operations in Nashua. Thus‚ the company controller suggested a change in the accounting process from LIFO to FIFO system for inventory accounting. A change such as this would require additional disclosures in the notes of the financial statement. Need for Change The company has decided to change its inventory accounting method from LIFO to FIFO as this will increase the profit by reducing the Cost of Goods sold. As the inventory gets consumed‚ the 1|Page valuation
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