Mac 710 - Fr A - Part 1

Front 1

Inventory is __________ in the ____________. There are 2 types of Inventory classifications:
1. ______ (1 inventory account)
2. ______ (3 inventory accounts: _____, ______, ______).

For a ________ if there is high ______ and low _____ and _____, this could indicate sales are slowing.

If there are high ______ and low ____ and ____, this could indicate increased production.

Back 1

assets held for sale; ordinary course of business;
1. Retailer
2. Manufacturer (Raw Materials, Work-In-Process, Finished Goods).

Manufacturer; Finished Goods, Raw Materials, WIP;

Raw Materials, Finished Goods, WIP,

Front 2

A company should recognize purchases when it obtains ______ of _____.

Examples:
Before delivery - _______ sale
Upon shipment - _________
Upon delivery - _________
After delivery - _________.

Back 2

ownership; goods

bill and hold
FOB shipping point
FOB destination
consignment.

Front 3

2 different ways to account for purchase discounts of inventory:

1. ______ method
2. ______ method

Ex: Purchase of 10,000, terms 2/10 net 30.
Gross Method? Net Method?

4000 paid within discount period.
Net Method? Gross Method?

6000 paid after the discount period.
Net Method? Gross Method?

Back 3

Gross
Net

Gross:
Inv. 10000
, A/P 10000

A/P 4000
, Inv. 80
, Cash 3920

A/P 6000
, Cash 6000

Net:
Inv. 9800
, A/P 9800

A/P 3920
, Cash 3920

A/P 5880
Pur. D. Lost 120
, Cash 6000

Front 4

Product vs. Period Costs (Inventory)

Generally, ______ costs are capitalized into inventory. Generally, ______ costs are expensed to SG&A.

For Manufacturing Overhead:
_____ OHD costs allocated on actual use
_____ OHD costs allocated to inventory based on normal capacity of the production facilities. (refers to the range of production levels reasonably expected - seasonal trends, planned maintence, etc..)

Abormally high production, amount of fixed OHD allocated to each unit _____ (should/should not) be decreased.


Abormally low production, amount of fixed OHD allocated to each unit _____ (should/should not) be increased.

Unallocated OHD costs for abnormally _____ production are recognized as an _______.

Back 4

product; period; variable; fixed; should; should not; low; expense

Front 5

Inventory is carried at the lower of cost or market value. The subsequent write off is an expense in the current year. After written down, the cost of inventory cannot be written back up.

For market value, ______ _______, ___________ ("_____") and _______ less __________ ("_____") are used.

Market Value is calculated as the middle value between the three.

Can apply LCM separately to each item of inventory or aggregate inventory. When aggregate inventory is used, write downs are ____ than when each item of inventory is used.

There are 2 methods for recording LCM:
1. _____ Method
2. ________ Method.

Journal Examples (10,000 write down)?

Also use these methods to write down obsolete inv.

Back 5

replacement cost, net realizable value ("Ceiling"), net realizable value less normal profit margin ("Floor").

less

Direct:
CoGS 10000
, Inv. 10000

Allowance:
Loss on Inventory 10000
, Allowance on Inv. 10000

Front 6

Deficiencies in LCM:

1. ______
2. different NIs,
3. '______' subjective

There are exceptions where GAAP allows inventory to be recorded at ______ (even if it writes Inv. up) when:
1. there is a ________ with a ________ and also no significant ___________.
2. __________ cost figures (meatpacking).

Excess Inventories shouldn't be written down unless required by LCM. Need to be _______________.

Adjustment for Inventory shortage?

Back 6

One sided; 'normal profit margin'

Net Realizable Value; controlled market quoted price applicable; costs of disposal; difficult to obtain

reclassified as a noncurrent asset.

Inv. Over and Short 200
, Inventory 200

Front 7

Cost Flow Assumptions:
1. FIFO
2. LIFO
3. Avg. Cost
4. Specific Identification

________ book / tax conformity

FIFO - better measure of ______
LIFO - better measure of ______

Many companies that use LIFO, use another system for internal reporting: this called _______. Companies should disclose this or ________ of inventory.

When older inventory is sold under LIFO, this is called a _____________. If this happens, a co. is required to have a footnote b/c profit is generated from non-normal ops. Using the _______ LIFO is a good way to combat this.

Back 7

Must have

Ending Inventory; CoGS

LIFO reserve; replacement cost.

LIFO liquidation; Dollar-Value

Front 8

Sometimes it is necessary for an approximation of EI.

Gross Profit Method?

- might not always be reliable b/c it uses past percentages.

Retail Inventory Method (widely used)
Three versions (need to know):
1. _____ (use cost-retail ratio on total goods available with _________.)
2. ______/ ______ (use cost-retail ratio on total goods available with _________.)
3. ______ (use cost-retail ratio on ______ and _______ with _________.)

Back 8

Take BI plus Purchases - CoGS (Net Sales - GP%) = EI

1. Cost (markups and markdowns)
2. Conventional / LCM (markups BUT no markdowns)
3. LIFO retail (beginning inventory and purchases; markups and markdowns).

Front 9

Purchase Commitments

Seller generally _________, and buyer recognizes _________. If material, buyer should __________. If price on contract will result in a loss because of market prices, buyer should preemptively anticipate the loss with a contingent liability.

Ex: $100 contract, loss of 30 expected. Journal entries?

Back 9

retains title to the merchandise; no asset or liability; disclose the contract in a footnote.

Unrealized G/L 30
, Est. Liability on PC. 30

Inventory 70
Est. L on PC 30
, Cash 100

Front 10

IFRS differences - Inventory:

1. _____________
2. _____________
3. _____________

Inventory Ratios

Inventory turnover ratio?
Measures the _______________

Average days to sell inventory?
Measures the _______________

Back 10

1. LIFO not allowed
2. "Market" in LCM is always Net Realizable Value
3. LCM write-downs can be written back up (only to original cost)

COGS / Average Inventory.

Measures the # of times a co. sells inv. during the period


365 / Inv. Turnover Ratio

Measures the # of days a co. has inventory on hand.