G property plant and equipment maintain an accumulated

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Unformatted text preview: l system) General rule for which costs are included in the cost of inventory: all costs necessary to get the item ready for sale F.O.B. o …destination – means that the buyer takes control of the inventory when it arrives at its destination (shipping costs are not included in the cost of inventory) o …shipping point – means that the buyer takes control of the inventory when it leaves the sellers warehouse (shipping costs are included in the cost of inventory) Multiple- step income statement – provides a more detailed description of how cost of goods sold is calculated under a periodic system Effect of different inventory valuation methods on COGS, net income, taxes, ending inventory when inventory costs are increasing/decreasing (see page 339- 340) Lower of cost or market rule (LCM) – adjust any inventory accounts if the cost of these items in the books is higher than the market value (replacement cost) of the items 3 Prepared by: Sara Toynbee Simply calculate the market value of inventory and compare to the book value. If market value < book value à༎ write down inventory to the lower amount (e.g., market value = $100, book value = $150): Cost of Goods Sold 50 Inventory 50 LIFO adjustment – journal entry to account for the difference in ending inventory between FIFO and LIFO methods of costing inventory (goes to the LIFO reserve). Need to calculate ending inventory under both methods and then the difference is the LIFO adjustment (there is no shortcut here sorry!) Converting Income Statement to FIFO – see page 345 and recall homework question (Chapter 7, #7) as discussed in class as an alternative way to solve this problem Effects of errors in measuring ending inventory (p. 347 and quiz 2 question) LIFO liquidation – sale of a lower- cost inventory item from beginning LIFO inventory Key ratios o Inventory Turnover = Cost of Goods Sold/ Average Inventory o Average Days to Sell Inventory = 365/Inventory Turnover...
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This document was uploaded on 02/09/2014.

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