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Chapter 8 - Solution Manual

The net method is also easy to apply purchases are

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The net method is also easy to apply. Purchases are recorded net of the discount. The theoretical justification is that discounts not taken are due to the passage of time and hence are more like interest on borrowed funds. The net method treats discounts not taken as interest expense. Also, the net method allows for better management control by reporting the cost of borrowing (the discount lost) separately. At the end of the accounting period, an adjustment should be made for the estimated discounts that will be lost. Case 8-12 The solution to this case depends on the companies selected by the students. Requiring the students to turn in the information they download is a good method to use to check their solutions.
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167 Case 8-13 In IAS No . 2 , the IASB held that the objective of inventory reporting is to determine the proper amount of cost to recognize as an asset and carry forward until the related revenues are recognized. The board stated a preference for the specific identification method of inventory valuation when the items are interchangeable or are produced and segregated for specific projects. This method was viewed as inappropriate when large numbers of interchangeable items are present. In these cases the IASB stated a preference for either FIFO or weighted average methods; however, LIFO was an allowed alternative. Under the revised IAS No. 2 , the use of LIFO is no longer allowed. Additionally, under IAS N0. 2 , inventory is to be measured at the lower of cost or net realizable value (estimated selling price less estimated costs of completion and sale). Inventory write-downs are calculated using net realizable value on an item-by-item basis, but allows write-downs to occur by groups of similar products in special circumstances. . IAS No. 2 requires inventory to be written down to net realizable value (floor) on an item-by-item basis, but allows write-downs to occur by groups of similar products in special circumstances. This contrasts to U. S. GAAP under which write-downs are normally determined either on an item-by-item, group, or categorical basis. Also, IAS No 2 allows previous inventory write-down reversals to be recognized in the same period as the write-down; whereas, any inventory write-downs under U.S. GAAP cannot subsequently be reversed. As the FASB and the IASB move toward convergence of accounting standards, the LIFO issue will need to be resolved. Although the process of converging U.S. GAAP with international GAAP has made a great deal of progress, there are still many issues yet to be addressed, including the fate of the LIFO method. For over a decade, FASB and the IASB have had an ongoing agenda of projects, the objective of which is to move the process of convergence forward. For the period 2006–2008, numerous convergence-related issues were identified as either being on an active agenda or on a research agenda prior to being added to an active agenda. However, the issues of LIFO and inventory valuation in general are not included on the active or the research agenda of either board. Case 8-14 The solution to this case depends on the companies selected by the students. Requiring the students to turn in the information they download is a good method to use to check their solutions. Financial Analysis Case Answer will depend on company selected CHAPTER 9 Case 9-1 a. Under FASB ASC 958-605, the land would be recorded at fair value. The inflow is considered revenue. The land would be reported in the balance sheet at $100,000. A corresponding amount of revenue would appear in the income statement.
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The net method is also easy to apply Purchases are recorded...

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