Cost of each Y unit 550 600 Instructions a Compute the price index for 2010

# Cost of each y unit 550 600 instructions a compute

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4.Cost of each Y unit\$5.50\$6.00Instructions(a)Compute the price index for 2010. Round to 2 decimal places.(b)Calculate the 12/31/10 inventory. Label all numbers.(c)Compute the price index for 2011. Round to 2 decimal places.(d)Calculate the 12/31/11 inventory. Label all numbers.Solution 8-162(a)Ending InventoryEnding InventoryIn End of Year Dollars:In Base DollarsX 300 × \$3.00 =\$ 900X 300 × \$2.00 =\$ 600Y 800 × \$5.50 =4,400Y 800 × \$4.50 =3,600\$5,300\$4,200Index = \$5,300 ÷ \$4,200 = 1.262 or 1.26(b)Base Layer\$3,100×1.00 =\$3,100Incremental Layer1,100×1.26 =1,3862010 Ending Inventory\$4,200\$4,486(c)Ending InventoryEnding InventoryIn End of Year Dollars:In Base DollarsX 400 × \$3.25 =\$1,300X 400 × \$2.00 =\$ 800Y 1,200 × \$6.00 =7,200Y 1,200 × \$4.50 =5,400\$8,500\$6,200Index = \$8,500 ÷ \$6,200 = 1.371 or 1.37Solution 8-162(cont.)(d)Base Layer\$3,100×1.00 =\$3,100Incremental Layer1,100×1.26 =1,3862,000×1.37 =2,7402011 Ending Inventory\$6,200\$7,2268 - 47
Test Bank for Intermediate Accounting, Thirteenth EditionShort Answer:1. As compared with the FIFO method of costing inventories, does the LIFO method result in a larger or smaller net income in a period of rising prices? What is the comparative effect on net income in a period of falling prices?1. The LIFO method results in a smaller net income because later costs, which are higher than earlier costs, are matched against revenue. Conversely, in a period of falling prices, the LIFO method would result in a higher net income because later costs in this case would be lower than earlier costs, and these later costs would be matched against revenue.2.Explain the following terms.(a) LIFO layer (b) LIFO reserve(c) LIFO effect2. (a) LIFO layer – a LIFO layer (increment) is formed when the ending inventory at base-year prices exceeds the beginning inventory at base-year prices.(b) LIFO reserve – the difference between the inventory method used for internal purposes and LIFO.(c) LIFO effect – the change in the LIFO reserve ( Allowance to Reduce Inventory to LIFO) from one period to the next.8 - 48
Valuation of Inventories: A Cost-Basis ApproachIFRS QUESTIONSTrue / False1.Who owns the goods, as well as the costs to include in inventory, are essentially accounted for the same under iGAAP and U.S. GAAP.2.U.S. GAAP has less detailed rules related to the accounting for inventories, compared to iGAAP.3.iGAAP does not permit the LIFO method to account for inventories.4.Many U.S. companies that have international operations use LIFO for U.S. purposes but use FIFO for their foreign subsidiaries.5.Both U.S. GAAP and iGAAP permit the use of the LIFO method to account for inventories.Answers to True / False questions:1.True2.False3.True4.True5.FalseMultiple Choice Questions:1.Under iGAAP, an entity should initially recognize inventory when

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