FASB 6 Flashcards

1
Q

List the weighted average cost per unit formula.

A

Cost of Goods Available for Sale/Number of Units Available for Sale.

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2
Q

What does the acronym FIFO mean?

A

First In First Out.

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3
Q

List the differences between periodic and perpetual applications of Last In First Out (LIFO).

A

In perpetual, each sale is cost with most recent purchase;

Perpetual results in a lower Cost of Goods Sold in a period of rising prices.

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4
Q

List the First In First Out (FIFO) cost flow assumptions.

A

Ending inventory composed of units most recently acquired;
Cost of Goods Sold (COGS) comprised of oldest units;
Most closely matches most firms’ actual physical flows;
Produces higher net income and higher valuation of inventory in periods of rising prices.

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5
Q

List the weighted average (WA) cost flow assumptions.

A

Weighted average cost per unit is the average cost of all units held during period;
Each item is treated as if cost at WA cost.

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6
Q

What is the calculation for determining Cost of Goods Sold (COGS)?

A

Beginning Inventory + Net Purchases = Ending Inventory + Cost of Goods Sold
Net purchases = Gross Purchases + Transportation In (Freight In)
- Purchases Returns and Allowances
- Purchases Discounts

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7
Q

List the differences between moving and weighted average cost flow assumptions.

A

Moving average computes a new weighted average cost per unit after each purchase of inventory;
Moving average results in lower Cost of Goods Sold during period of rising prices.

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8
Q

List the weighted average cost per unit formula

A

Cost of goods available for sale/number of units available for sale.

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9
Q

List the Last In First Out (LIFO) cost flow assumptions.

A

Ending inventory composed of oldest inventory;
Cost of Goods Sold (COGS) composed of newest inventory;
Produces lower net income and ending inventory valuation in periods of rising prices.

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10
Q

What account holds inventory acquisition cost during the period under a periodic system?

A

Purchases.

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11
Q

List the characteristics for the specific identification cost flow assumption.

A

Specifically identifies cost of each item;

Appropriate for large, costly, distinguishable products.

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12
Q

What inventory system is implied when the moving average cost flow assumption is utilized?

A

Implies the perpetual inventory system.

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13
Q

For which method should an ending inventory count be made?

A

Both periodic and perpetual.

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14
Q

What cost flow assumption is the same for both the periodic and perpetual systems?

A

First In First Out (FIFO).

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15
Q

List the main differences between perpetual and periodic entries

A

The use of the inventory account rather than purchases and recording cost of goods sold at sale.

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16
Q

What cost flow assumption utilizes the latest purchases at time of sale?

A

Last In First Out (LIFO).

17
Q

List some reasons to avoid Last In First Out (LIFO) liquidation.

A

Increases taxes;

Does not match current period expenses and revenues.

18
Q

What does Ending Inventory reflect in First In First Out (FIFO)?

A

Reflects the latest costs.

19
Q

What effect does using Last In First Out (LIFO) have on the income statement?

A

Matching of revenues and expenses on the income statement become significantly improved.

20
Q

What is the main reason for using Last In First Out (LIFO) in periods of rising costs?

A

Tax minimization.

21
Q

List the reasons for a Last In First Out (LIFO) liquidation.

A

Poor planning;

Lack of supply.

22
Q

List the attributes of Last In First Out (LIFO).

A

Matching of revenues and expenses is significantly improved over FIFO;
Income tax advantages associated with LIFO;
Balance sheet presentation is less than ideal.