Chapter 10 - Inventory Flashcards
LCNRV is used with what method?
any but LIFO
LCM is used with what method?
LIFO
LCNRV write-down effects
reduce reported inventory, reduce net income
LCM write-down effects
reduce reported inventory, reduce net income
NRV equation
= estimated selling price - costs for completion, disposal, and transportation
(LCNRV) if NRV is lover than cost,
we need to adjust
adjusting entry for LCNRV when the write-down is common
debit COGS, credit inventory (or allowance)
adjusting entry for LCNRV when the write-down is not common
debit loss on write down, credit inventory (or allowance)
LCM ceiling is
NRV
LCM floor is
NRV - normal profit margin
NRV ceiling equation
= selling price -estimated selling costs
NRV - NPM (floor) =
NRV - normal profit margin
in LCM, you choose the lower between…
cost or market
gross profit margin is _____ under GAAP
unacceptable
usual method of calculation uses EI from what?
a physical count
gross profit method of calculation uses EI from what?
estimated
common uses for gross profit method
test reasonableness, estimate EI for interim financial reports, estimate the cost of inventory destroyed by an accident
the retail inventory method is used by…
high volume retailers selling items at a low price
step one RIM
estimate the amount of ending inventory at retail price
amount of ending inventory (at retail) =
goods available for sale (at retail) - retail sales
step 2 RIM
cost to retail %
cost to retail % =
goods available for sale (at COST) / goods available for sale (at retail)
when applying lifo to the retail method, we assume
the retail prices of goods remained stable during the period
when there is a net increase in the inventory quantity, LIFO results in a EI that…
includes BI as well as additional layers
when there is a net decrease in IQ, LIFO results that…
LIFO layers are liquidated
in the conventional approach…
exclude markdowns from the calculation of cost-to-retail %
