Exam 9: Inventories

The Skone Corporation reported at the end of the year a LIFO reserve of $25,000.The beginning LIFO reserve was $20,000.The cost of goods sold was $197,500 under LIFO.The cost of goods sold under FIFO should be

The Johnson Corporation reported at the end of the year a LIFO reserve of $45,000.The beginning LIFO reserve was $60,000.The cost of goods sold was $260,000 under LIFO.The cost of goods sold under FIFO should be

When applying lower of cost or market under IFRS,market is defined as

It is possible to estimate the amount of inventory holding gain (or loss)that is embedded in a company's FIFO earnings number.

Under a periodic inventory system,no entry is made at the time of sale to reflect cost of goods sold.

The World Company's financial statements for 2014 and 2015 contain the following errors: 2015 2014 Ending Inventory \ 6,000 overstated \ 16,000 overstated Insurance Expense \ 4,000 understated \ 12,000 overstated -If the proper correcting entries were made at the end of 2014,how much will 2015 income before taxes be overstated or understated?

Goods available for sale needs to be allocated between

U.S.tax rules specify that if LIFO is used for tax purposes,the external financial statements must also use LIFO.

Salvadore Land & Pineapple Company,Inc.is a Hawaii corporation that consists of a landholding and operating parent company and its principal subsidiaries,including Salvadore Pineapple Company,Ltd.and Kapawau Land Company,Ltd.Refer to the excerpts that follow from the December 31,2015 annual report.All questions relate to the year ended December 31,2015 unless stated otherwise.Assume a 35% corporate tax rate where necessary. INVENTORIES: Inventories of tinplate,cans,ends and processed pineapple products are stated at cost,not in excess of market value,using the dollar value last-in,first-out ("LIFO")method. Agriculture product inventories were comprised of the following components at December 31,2015 and 2014: The replacement cost of Agriculture product inventories at year-end approximated $8 million in 2015 and $10 million in 2014.In 2015 and 2014,there were partial liquidations of LIFO inventories;thus,cost of sales included prior years' inventory costs,which were lower than current costs.Had current costs been charged to cost of sales,income from continuing operations before income taxes for 2015 and 2014 would have decreased by $2.3 million and $2.9 million,respectively. Required: a.What amount of agricultural products inventory is on the balance sheet at December 31,2015? b.Assume that ending inventory was overstated at December 31,2015.Explain how net income would be affected by the error. c.The inventory note states that inventory amounts are "stated at cost,not in excess of market value,using the dollar value last-in,first-out ("LIFO")method." Which accounting principle or concept justifies writing down assets when market prices are lower than cost,but leaving them at cost when market prices are higher than cost? d.How much has Salvadore Land & Pineapple Company deferred in income taxes since being on LIFO? e.What impact did LIFO liquidations have on net income for the year ended December 31,2015? Explain why investors would want to know about this impact. f.Compute the inventory turnover ratio to approximate physical unit flow for the year ended December 31,2015.

Tool City,Inc.had 300 cordless screwdrivers on hand at January 1,2015 costing $45 each.Purchases and sales of cordless screwdrivers during the month of January were as follows: Date Purchases Sales January 9 200@\ 75 January 14 100@\ 47 January 23 75@\ 76 January 25 100@\ 48 January 30 75@\ 77 Tool City does not maintain perpetual inventory records.According to a physical count,150 cordless screwdrivers were on hand at January 31,2015. Required: a.What is the cost of the inventory at January 31,2015 under the FIFO method? b.What is the cost of the inventory at January 31,2015 under the LIFO method? c.What is the cost of the inventory at January 31,2015 under the FIFO method if only 145 cordless screwdrivers were on hand at the time of the physical count? Based on the data given,what is the most likely explanation for the fact that only 145 cordless screwdrivers were actually counted?

Jones Bros.Tools,Inc.had the following layers in its LIFO table saw inventory at January 1,2015.The company sets its selling price at 200% of replacement cost at the time of sale.Replacement cost as of January 1,2015 was $835 per unit and remained unchanged throughout 2015.During 2015,the company purchased 650 units and sold 1,125 units. Year LIFO Laver Added Units Unit Cost 2012 200 \ 740 2013 180 780 2014 175 820 Required: Calculate the difference between Jones Bros.Tools,Inc.'s current cost operating margin (on a replacement cost basis)and the LIFO margin as reported by the company in 2015.What does the difference represent?

Cramer Corporation has two products in its ending inventory and uses lower of cost or market to account for each.Cramer normally prices its products to maintain a 30% gross profit margin.Specific data for each product follows:B.The replacement cost of $92 is between the ceiling ($148)and floor ($88)and is higher than historical cost. Product A Product B Historical cost \ 34 \ 90 Replacement cost 30 92 Estimated cost to dispose 10 52 Estimated selling price 60 200 Required: Using the lower of cost or market rule,what unit values should Cramer use to cost Products A and B in its ending inventory?

The major issue in inventory accounting is

GAAP requires the cost flow assumption to correspond to the actual physical flow of inventory.

Variable costing is an acceptable costing method for GAAP.

A perpetual inventory system

The conversion of a LIFO inventory to approximate the inventory at FIFO is accomplished through application of which one of the following formulas?

Absorption costing makes it difficult for financial statement users to interpret year-to-year changes in reported income when inventory levels change between one year and the next.

By charging the oldest costs to the income statement,FIFO automatically includes in income the holding gain on the unit that was sold.

The LIFO-to-FIFO adjustment for a company that uses LIFO for only a portion of its inventory is different from the method used when a company uses LIFO for its entire inventory.