8 70 chapter 08 inventories measurement communication

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Chapter 08 - Inventories: MeasurementCommunication Case 8-4Suggested Grading Concepts and Grading Scheme:Content (70%)________20Describes the differential effect on ending inventoryand cost of goods sold of using FIFO versus LIFOwhen_______ Prices are increasing._______ Prices are decreasing.________25Discusses the various motivating factors that might influence the choice of inventory method._______ The actual physical flow of product._______ The better match of expenses with revenuesprovided by LIFO._______ The effect on the balance sheet._______ The effect on reported income and incometaxes._______ The cost of implementation of LIFO.________10Discusses briefly the methods available tosimplify LIFO.________15Discusses the IRS conformity rule with respect to LIFO and the relaxation of the rule that allows aa company using LIFO to present supplemental non-LIFO disclosures._______________70 pointsWriting (30%)________6Terminology and tone appropriate to the audience ofa company president.________12Organization permits ease of understanding._______ Introduction that states purpose._______ Paragraphs that separate main points.________12English_______ Sentences grammatically clear and well organized,concise._______ Word selection._______ Spelling._______ Grammar and punctuation._______________30 points8-71
Chapter 08 - Inventories: MeasurementCommunication Case 8-5LIFO produces a higher cost of goods sold, lower taxable income and therefore lower income taxes currently payable than FIFO only in periods when the costs of the company’s products are rising. When costs are decreasing, LIFO results in lower cost of goods sold, higher taxable income, and a higher current tax liability than FIFO. In the case of the electronics client, you would explain this to the intern concluding that the costs of the client's products must be decreasing, as frequently occurs in this industry.Judgment Case 8-6At the end of a reporting period it is important to ensure that a proper inventory cutoff is made. A proper cutoff involves the determination of the ownership of goods that are in transit between the company and its customers as well as the company and its suppliers. If the shipment is made f.o.b. shipping point, then ownership is transferred to the buyer when the goods reach the common carrier. If the shipment is made f.o.b. destination, then ownership is transferred to the buyer when the goods arrive at the buyer’s location. In this case, John is incorrect if the goods were shipped f.o.b. destination. If so, even though the company is not in physical possession of the goods, they should be included in ending inventory because the shipment had not reached the buyer's location by the end of the reporting period.8-72
Chapter 08 - Inventories: MeasurementEthics Case 8-7Requirement 1Without purchase of the additional units:Sales (35,000 @ $60)$2,100,000Cost of goods sold (35,000 x $30)(1,050,000)Gross profit$1,050,000Due Jim Lester($1,050,000 x 20%)= $210,000With purchase of the additional units:Sales $2,100,000Cost of goods sold:20,000 x $40$800,00015,000 x $30450,000(1,250,000)Gross profit$ 850,000Due Jim Lester($850,000 x 20%)= $170,000Requirement 2Discussion should include these elements.

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