calculated under FIFO method and the closing stock will be lesser in LIFO due to the higher cost of sales which in turn would result in lesser gross profit. This is transferred to Profit & Loss Account/Income Statement/Statement of Financial Performance which in turn would result in lesser net profit & high tax savings as tax would be levied on lesser Net Profit. Here Golf Challenge Corp. can use FIFO method to comply with the loan financing requirements and also because in FIFO method Net profit
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However there are several treatments upon which they differ. When it comes to the treatment of inventory US GAAP allows for both the FIFO and LIFO methods to be used provided that they are accounted for consistently or provide sufficient reason for change. IFRS however strictly prohibits the use of LIFO and only recognizes the accounting for cost of goods sold on the FIFO or weighted average cost basis. This really is a very big stumbling block on the path to convergence because of the immense tax advantages
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CHAPTER 8 Valuation of Inventories: A Cost-Basis Approach ASSIGNMENT CLASSIFICATION TABLE (BY TOPIC) Topics 1. Inventory accounts; determining quantities, costs, and items to be included in inventory; the inventory equation; balance sheet disclosure. Perpetual vs. periodic. Recording of discounts. Inventory errors. Flow assumptions. 10, 11 7 12, 13, 16, 18, 20 4 5, 6, 7 Questions 1, 2, 3, 4, 5, 6, 8, 9 Brief Exercises 1, 3 Exercises 1, 2, 3, 4, 5, 6, 10 Problems 1, 2, 3 Concepts for Analysis 1
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| When the current replacement cost of inventory is less than its cost, it is written down to |LIFO value. | | |Market value. | | |Average-cost value. | | |FIFO value. | 3) Gomez Company just took its physical inventory. The count of inventory items on hand at the company’s business locations resulted in a total inventory cost of $295,574. In reviewing the details of the count and related
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Morgan Manufacturing implemented significant productivity improvements over Westwood. But these improvements were not reflected in the financial statements (Exhibit 1). Morgan Manufacturing used LIFO as its inventory costing method, while Westwood used FIFO. Additionally, comparison of three key ratios indicated relative differences between these two competitors: gross margin percentage, pre-tax return on sales, and pre-tax return on assets. And calculations of these three ratios are below: Ratio |
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April 10 | Sale | 60 | 5,000 | 300,000 | April 19 | Sale | 30 | 5,000 | 150,000 | April 28 | Purchase | 100 | 2,200 | 220,000 | Required: 1. Record the inventory, purchases and cost of goods sold in a Perpetual Inventory record using the FIFO method. 2. Determine the total sales and the total cost of goods sold for the period. Journalize the entries in the sales and cost of goods sold account. Assume that all sales were on account. 3. Determine the gross profit from sales for
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Introduction: Merrimack Tractors and Mowers was setup in 1980 and is based out of Nashua, New Hampshire. It is a major manufacturer and seller of large commercial grass mowers. The other major players in this product category were John Deere, The Toro Company, Simplicity and Husqvarna. The company had outsourced its manufacturing to a contractor in China and was primarily dealing in machines and parts design and distribution. Hence, Merrimack can be termed as a Merchandiser rather than a Manufacturer
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average-cost, (b) LIFO, and (c) FIFO. Explain how you calculated each answer. Hi Welcome to Just Answer. The ending inventory contains 200 units. Since the purchase price increases throughout the month, the ending inventory cost would be different when we use different ways in computing the cost. Average Cost Method: The price can be computed using a weighted average method. So, the price is $3.5 per unit. The ending inventory cost is $3.5 (200) = $700 FIFO: Units purchased first would
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calculate the value of the goods in inventory. By reporting and analyzing such information, a company can help to predict financial performance and the best plan to achieve results. Such inventory valuation methods include: Average Cost Method; FIFO; and LIFO. The inventory valuation methods use two different inventory systems – perpetual and periodic. The perpetual inventory system is used when a company reports the cost of goods sold as those goods are sold throughout the accounting period
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Generally Accepted Accounting Principles (GAAP) are: 1. Specific Identification Method 2. First-in, First-out (FIFO) 3. Last-in, First-out (LIFO) 4. Average Cost Method Each affects the valuation of inventory and the cost of goods differently. Specific identification method, although the most accurate method, it is not practical for large volume inventories that are of similar products. FIFO is a cash flow assumption that assumes earlier goods purchased by a company are the first ones to be sold
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