Section 2...Inventory

Question 1

Lower of Cost or Market (LIFO)

Answer 1

IF Replacement cost is LOWER than NRV, than use LOWER of Orig Cost and Replacement Cost

IF Replacement cost is GREATER than NRV AND NRV LESS PROF MARGIN, use NRV

IF Replacement cost is GREATER than NRV but LESS than NRV LESS PROF MARGIN, use

Question 2

Inventory Write-Off’s

Answer 2

NOT counted in COGS

Question 3

Costs included in inventory

Answer 3

**Any costs to get the item ready for sale to customer:

Shipping costs to receive the inventory
Insurance
Taxes and tariffs
Duties
Storage - in transit
Discounts

Question 4

FIFO

Answer 4

EI is made up of most recently purchased items (most expensive)
COGS is made up of oldest (cheapest) items

Question 5

LIFO

Answer 5

EI and COGS is opposite of FIFO

Question 6

Weighted Average

Question 7

Effect of Inv Errors

Answer 7

BI OVERstated: COGS - OVERstated Gross Profit - UNDERstated
BI UNDERstated: COGS -UNDERstated Gross Profit - OVERstated
EI OVERstated: COGS - UNDERstated Gross Profit - OVERstated
EI UNDERstated: COGS - OVERstated Gross Profit- UNDERstated

Question 8

Avg Cost for Retail
Avg Cost Retail LCM
Avg Cost Retail FIFO
Avg Cost Retail FIFO LCM
Avg Cost Retail LIFO

Answer 8

See pics in phone

**Only difference between these and LCM methods is that for LCM, Net markdowns comes out of equation

Question 9

Moving-average unit cost

Answer 9

1. Inv Beg Cost x Units On Hand
2. Purchases x Cost
3. Add 1. + 2.
4. Divide 3. by Ending Units On Hand

Question 10

Dollar Value LIFO

Answer 10

Price Index: Sum of Current year costs / Sum of Base year costs

NoteTake inv at base year at cost and anything added in current year needs to be adjusted for price increases

If Current year inventory is given along with % price increase, take Current year Inv / 1.%price inc.
*This gives you how much inventory has increased.
**Take this number and multiply by 1.%price inc for the answer.

Question 11

FOB DESTINATION

Answer 11

Under this scenario, the SELLER bears ALL costs of transportation.

Question 12

Periodic v Perpetual

Answer 12

Weighted-avg method used with Periodic
Moving-avg used with Perpetual

Question 13

Cumulative Effect of Accounting Change

Answer 13

Remember to take difference in accounting methods from BEGINNING OF YEAR ONLY multiplied x’s (1 - tax rate).