Chap008 - Chapter 08 - Inventories: Measurement Chapter 8...

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Chapter 08 - Inventories: Measurement 8-1 Chapter 8 Inventories: Measurement QUESTIONS FOR REVIEW OF KEY TOPICS Question 8-2 Question 8-5 Question 8-6 Question 8-9 Question 8-16 between U.S. GAAP and IFRS in the methods allowed to value inventory is that IFRS does not allow the use of the LIFO method. Beginning inventory plus net purchases for the period equals cost of goods available for sale. The main difference between a perpetual and a periodic system is that the periodic system allocates cost of goods available for sale to ending inventory and cost of goods sold only at the end of the period. The perpetual system accomplishes this allocation by decreasing inventory and increasing cost of goods sold each time goods are sold. A consignment is an arrangement under which goods are physically transferred to another company (the consignee), but the transferor (consignor) retains legal title. If the consignee can’t find a buyer, the goods are returned to the consignor. Goods held on consignment are included in the inventory of the consignor until sold by the consignee. By the gross method purchase discounts not taken are viewed as part of inventory cost. By the net method purchase discounts not taken are considered interest expense, because they are viewed as compensation to the seller for providing financing to the buyer. When costs are declining , LIFO will result in a lower cost of goods sold and higher income than FIFO. This is because LIFO will include in cost of goods sold the most recently purchased lower cost merchandise. LIFO also will provide a highe r ending inventory in the balance sheet. The primary difference
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Chapter 08 - Inventories: Measurement 8-2 BRIEF EXERCISES Brief Exercise 8-1 Beginning inventory $186,000 Plus: Purchases 945,000 Less: Cost of goods sold (982,000 Ending inventory $149,000 ) Brief Exercise 8-5 December 28, 2011 Inventory ( 99% x $250,000) ............................................... 247,500 Accounts payable . ..................................................... 247,500 January 6, 2012 Accounts payable . .......................................................... 247,500 Cash . ........................................................................... 247,500
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Chapter 08 - Inventories: Measurement 8-3 Brief Exercise 8-6 Cost of goods available for sale: Beginning inventory (200 x $25) $5,000 Purchases: 100 x $28 $2,800 200 x $30 6,000 8,800 Cost of goods available (500 units) $13,800 First-in, first-out (FIFO)
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Chap008 - Chapter 08 - Inventories: Measurement Chapter 8...

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