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Unformatted text preview: Kristin Chen OR& I E 350 Prelim 2 Review Sheet • Inventory Costing A current asset shown at “proper value” Carried at cost (never at selling price) 4 methods to keep track of cost of each item- Spec. Identification - Average Weighted Cost- FIFO (“first in first out”)- LIFO (“last in first out”) 1. F I FO—“ first in first out” Also called “last in still here” (LISH) Oldest items are sold, newest in ending inventory B/S is accurate; CoGS out of date; I/S not as accurate Shows low CoGS, high net income -> high taxes 2. L I FO— “last in first out” Newest items sold, oldest in ending inventory Also called “FISH” first in still here CoGS is accurate; I/S accurate Shows high CoGS; lower Net Income, lower taxes 3. Weighted Average Cost of goods available for sale # of units available for sale • Inventory Impairment Held at historical cost Inventory (A) Historical Cost Adjustment Lower Cost Dr Cr [Date] Inventory Holding Loss (Temp SE) X Inventory (A) X For write downs, select the lower of “cost” or “market value” (LCM) NRV (Net Realizable Value) NAC (Net Adjusted Cost) RC (Replacement Cost) Price received for inv. sold today Subtract refurbishment costs NAC = NRV - Normal Profit Cost of replenishing inv. today *All 3 are on a cost/unit basis Use NRV, NAC, & RC to find the “market value” 1 st STEP : rank order & pick the middle value which is the “market value” F I NAL STEP : compare “market” to “cost” and take the lower value • Depreciation Straight line method Annual depreciation expense = acquisition cost – salvage value Useful life Lease Term = initial value Annual depreciation Adjusting entry: Dr Cr Depreciation Expense (Temp SE) X Accumulated Depreciation (XA) X Sale entry: Dr Cr Cash (A) X Accumulated Depreciation (XA) X Loss on Sale* ( Temp SE) X Equipment (A) X Gain on Sale* (Temp SE) X *for Gain on Sale, subtract amt from Cash Flow from Operations...
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This note was uploaded on 04/05/2009 for the course ORIE 350 taught by Professor Callister during the Summer '08 term at Cornell.
- Summer '08