F3 M3 Inventory Flashcards
___ in inventory market value should be reflected in interim financial statements in the period incurred.
Permanent declines in inventory market value
Gold, silver, and other precious metals, and meat and some agricultural products are valued at ____.
Net realizable value
With agricultural products, revenue is recognized at ____ and not at time of sale.
Time of production
The cost of shipping, packaging, and handling are costs for the (buyer/seller) with FOB destination?
Seller, title passes when received by the buyer
The cost of shipping, packaging, and handling are costs for the (buyer/seller) with FOB shipping?
Buyer, title passes when it gets on the truck
How does this affect COGS?
Understatement of beginning inventory
Understatement of COGS, this is the first line of the COGS calculation
How does this affect COGS?
Overstatement of ending inventory
Understatement of COGS, if you overstate the ending inventory you’re saying you have more on hand thus meaning you sold less and had less cost
Under US GAAP, ___ method most closely approximates the current cost for cost of goods sold.
LIFO, last in is the first out
Under US GAAP, ___ method most closely approximates the current cost of ending inventory.
FIFO, the most recent purchases remain in ending inventory
How do you compute the moving average?
Computer the weighted average costs after each purchase (total cost of inventory available after each purchase / total units available after each purchase).
Under this method of inventory cost calculation a new weighted-average cost is computed after each purchase and issues are priced at the latest weighted average cost.
Moving average method
Under ____ method, inventory is measured in dollars and is adjusted for changing in price levels.
Dollar-value LIFO
How do you calculate a price index
Ending inventory current year cost / ending inventory at base year cost
To compute the LIFO layer added in the current year at dollar-value LIFO, the calculation is:
LIFO layer at base year cost (what was added this year) is multiplied by the internally generated price index
What is the gross profit margin mean?
Total revenue minus COGS = Gross profit
Gross profit margin means that the % is how much the gross profit is of the total revenue (i.e. 25% gross profit margin; the reverse is that 75% is COGS.)
FIFO periodic and FIFO perpetual will (always/never) result in the same dollar valuation of ending inventory.
Always
What are the steps to using the price index to calculate dollar-value LIFO inventory?
Jan 1 Inventory valued at $500,000
Price index is 1.10
Dec 31 inventory valued at $577,500 current year cost
Dec 31 inventory valued at $525,000 base year cost
Calculate the base year layer (525-500) = $25,000
Take the layer times the price index $27,500
Add the layer to the beginning inventory $527,500
With a ______ system, the quantity of inventory is determined only by physical count, usually at least annually. Therefore, units of inventory and the associated costs are counted and valued at the end of the accounting period and the cost of inventory sold and inventory shortages cannot be easily distinguished.
Periodic
Which US GAAP inventory costing method would a company that wishes to maximize profits in a period of rising prices use?
FIFO
When the current market value of the inventory is less than the fixed purchase price in a purchase commitment, the loss must be recognized _____. A ____ must be recognized on the balance sheet and a description of the losses must be described in the footnotes.
Recognized at the time of the decline in price
Liability
Under the lower of cost or net realizable value rule, what are the two options and how are they calculated?
Lower of cost = the current inventory basis (not the replacement cost)
Net realizable value = the selling price less costs to complete and sell.
The inventory would be valued at the lower of the two
How does excluding goods from ending inventory affect retained earnings? Walk it through from assets to retained earnings.
Assets are understated, causing an overstatement of COGS, which results in an understatement of net income and retained earnings
Until the inventory is sold, the consignor or the consignee will include the inventory in their ending inventory.
Consignor
In Jan, Stitch Inc adopted the dollar-value LIFO method of inventory valuation. At adoption, inventory was valued at $50,000. During the year, inventory increased $30,000 using base-year prices, and prices increase 10%. The designated market value of Stitch’s inventory exceeded its cost at year end. What amount of inventory should Stitch report in its year-end balance sheet?
$83,000
$50,000 + ($30,000 x (1+10%))
Under dollar value LIFO we must restate this increase by the appropriate price-level index. Do not adjust the original $50,000
