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Horngren 10e SM 07 Chapter

# Horngren 10e SM 07 Chapter - CHAPTER7 COVERAGEOFLEARNING...

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CHAPTER 7 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVES QUESTIONS EXERCISES PROBLEMS OTHER LO1: Link inventory valuation to gross profit. 25,26,30 34,35,37,46, 47 LO2: Use both perpetual and periodic inventory systems. 1,2,3,4,24,33 36,40,44,45 55,56,85 LO3: Calculate the cost of merchandise acquired. 5,6 38,39,41,42, 43,52 LO4: Compute income and inventory values using the three principal inventory valuation methods allowed under both U.S.GAAP and IFRS, and the one method allowed only by U.S. GAAP. 7,8,9,10,12, 13,14,32 50 58,59,63,64, 65,66,70, 72,74,75 89,90 LO5: Use the lower-of- cost-or-market method to value inventories under both U.S.GAAP and IFRS 21,22 51 61,77 LO6: Show the effects of inventory errors on financial statements. 23,31 48 62,69,80,86 88 LO7: Evaluate the gross profit percentage and inventory turnover. 49,53,54 57,83 LO8: Describe characteristics of LIFO and how they affect the measurement of Income (Appendix 7A) 11,16,17,18, 27,28 60,67,68,71, 73,76,78,79, 81,82,84 LO9: Determine inventory costs for a manufacturing company (Appendix 7B). 2,29 87 Chapter 7 Inventories and Cost of Goods Sold 227

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CHAPTER 7 7-1 Sales transactions are accompanied by recording of the cost of goods sold (or cost of sales). This is literally true under the perpetual system and conceptually descriptive under the periodic system. 7-2 The two steps are obtaining (1) a physical count and (2) a cost valuation. 7-3 Perpetual systems provide continuous inventory and cost of goods sold records. Periodic systems rely on taking a physical inventory to calculate and record cost of goods sold at the end of the period. 7-4 It is true that the periodic method requires a physical count to measure cost of goods sold and the perpetual method does not. However, for control purposes, it is important to undertake at least annual physical counts of inventory under the perpetual method, as well. The difference between what the accounting records show and the physical count will be due to theft, spoilage, or other unrecorded changes. 7-5 F.O.B. destination means the shipper pays the freight bill. F.O.B shipping point means the customer bears the cost of the freight bill. F.O.B. stands for “free on board.” The terms also describe whether the seller or buyer “owns” the goods while they are in transit. 7-6 Freight out is not shown as a direct offset to sales. Unlike sales discounts and returns, freight out is not a part of gross revenue that never gets collected . Instead, it is an expense, entailing ordinary cash disbursements . 7-7 The four methods are: 1. Specific identification – charges the actual cost of the specific item sold. 2. FIFO – items purchased first are assumed to be sold first. 3. LIFO – items purchased most recently are assumed to be sold first. 4. Weighted average – the average cost of all items available is charged for each item sold. 7-8 The specific identification method is normally used for low volume, high value items.
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Horngren 10e SM 07 Chapter - CHAPTER7 COVERAGEOFLEARNING...

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