F3M3 Flashcards
Inventory
FOB Shipping Point
Title of inventory passes from seller to buyer when seller delivers the goods to a common carrier.
Buyer includes the goods in their inventory upon seller shipping them.
FOB Destination
Title passes from seller to buyer when the buyer receives the goods from the common carrier.
What are precious metals and farm products valued at for inventory?
Net Realizable Value= selling price - costs to complete - costs of disposal
previous metals valued at NRV if there is an effective government controlled market at a fixed monetary value
Agriculture, minerals, and other products valued at NRV if they have immediate marketability at quoted prices, unit interchangeability, and an inability to determine appropriate costs.
Installment sales of inventory
If the seller sells goods on an installment basis and retains the legal title as security for the loan, the goods are in the sellers inventory books if a percentage of uncollectible debts cannot be estimated
If the percentage can be estimated, the transaction will be accounted for as a sale and an allowance for uncollectible debts would be recorded.
Net realizable value equation
net Selling price - costs to complete - costs to dispose of the inventory
Market value (for lower of cost or market)
median of an inventory items replacement cost, its market ceiling, and its market floor.
Replacement cost (for lower of cost or market)
Cost to purchase the item of inventory as of the valuation date.
this is typically the median used as it is typically between the ceiling and floor but that is not always the case.
Market Ceiling (for lower of cost or market)
an items net selling price less the costs to complete and costs to dispose aka NRV
Market floor (for lower of cost or market)
Market ceiling (NRV) - a normal profit margin.
Journal entry to record the write down of inventory to a separate account
Debit Inventory loss due to decline in market value
Credit Inventory
Periodic inventory system COGS calculation
Beginning Inventory + purchases = Costs of goods available for sale - Ending inventory (physical count)
Periodic Inventory System
year end inventory accounts
Inventory and COGS are not adjusted as sales are made
COGS is calculated after the periodic inventory count
Perpetual Inventory System
Inventory and COGS are updated for each sale and purchase as they occur.
There is a running inventory count.
Hybrid Inventory Systems
Units of inventory on hand: quantities only= perpetually recording the change in units only
Perpetual with Periodic at year end: most companies with the perpetual system in place, do a periodic physical inventory count on all the inventory or test count some of their inventory on a random or cyclical basis.
Dollar-value LIFO internally computed price index formula
Price index = ending inventory at current year cost / ending inventory at base year cost
Price index is multiplied by the added LIFO layer at base year cost to equal the LIFO layer added in the current year at dollar value LIFO.
