ACCT 001 Lecture Notes - Lecture 16: Standard Accounting Practice, Current Liability, Conceptual Framework

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skywildebeest596

10 Jul 2020

School

College of The Sequoias

Department

Accounting (ACCT)

Course

ACCT 001

Professor

Cooper

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Document Summary

Valuing inventory at the lower of cost and net realizable value. When the net realizable (fair) value is less than cost, the value is written down. The lower of cost and net realizable value (lcnrv) rule. Net realizable value is selling price less any costs to make ready for sale. Reduce inventory by crediting it for the amount of write-down, debit is to cost of goods sold. When conditions that caused the write-down have changed. Financial activities of a business can be separated from those of the. Economic information can be meaningfully captured and communicated. Accounting time period over short periods of time. Accountants assume that the dollar is the most effective means to communicate economic activity (attribute of interest) Accountants assume that a company will continue to operate into the. If people can"t understand it then they won"t use it. Needs to be relevant for the decision. If you can"t trust it, then you don"t base decisions on it.

Related Questions

Almaden Hardware Store sells two product categories, tools and paint products. Information pertaining to its 2018 year-end inventory is as follows:

Inventory, by Product Category	Quantity	Per Unit Cost		Net Realizable Value
Tools:
Hammers	100	$	4.50	$	5.00
Saws	150		9.50		8.50
Screwdrivers	250		1.50		2.10
Paint products:
1-gallon cans	450		5.50		4.50
Paint brushes	100		3.50		4.00

Required:
1. Determine the carrying value of inventory at year-end, assuming the lower of cost or net realizable value (LCNRV) rule is applied to (a) individual products, (b) product categories, and (c) total inventory.
2. Assuming that the company reports an inventory write-down as a line item in the income statement, for each of the LCNRV applications determine the amount of the loss.

ultramarinehound607

Sweet Co. follows the practice of valuing its inventory at the lower-of-cost-or-market. The following information is available from the companyâs inventory records as of December 31, 2017.

Item	Quantity	Unit Cost	Replacement Cost/Unit	Estimated Selling Price/Unit	Completion & Disposal Cost/Unit	Normal Profit Margin/Unit
A	1,800	$9.15	$10.25	$12.81	$1.83	$2.20
B	1,500	10.00	9.64	11.47	1.10	1.46
C	1,700	6.83	6.59	8.78	1.40	0.73
D	1,700	4.64	5.12	7.69	0.98	1.83
E	2,100	7.81	7.69	8.17	0.85	1.22

Greg Forda is an accounting clerk in the accounting department of Sweet Co., and he cannot understand why the market value keeps changing from replacement cost to net realizable value to something that he cannot even figure out. Greg is very confused, and he is the one who records inventory purchases and calculates ending inventory. You are the manager of the department and an accountant.

1. Calculate the lower-of-cost-or-market using the individual-item approach.

2. Show the journal entry he will need to make in order to write down the ending inventory from cost to market.

mauvebeetle296

GAAP Application-Conceptual Framework of Accounting the ConceptualFramework allows for the systematic adaptation of accountingstandards to a changing business environment. The FASB uses theconceptual framework to aid in an organized and consistentdevelopment of new accounting standards. The conceptual frameworkoutlines the objectives of financial reporting and the qualities ofgood accounting information, precisely defines commonly used termssuch as asset and revenue, and provides guidance about appropriaterecognition, measurement, and reporting. Understanding theterminology associated with the framework is imperative. Match thenumbered statements below with the lettered terms. An answer(letter) may used more than once, and some terms require more thanone answer (letter). 1. Key ingredients in quality of relevance. 2.Traditional assumptions that influence the FASB's conceptualframework. 3. The idea that information should represent what itpurports to represent. 4. An important constraint relating to costsand benefits. 5. An example of conservatism 6. The availability ofinformation when it is needed. 7. Recording an item in theaccounting records. 8. Determines the threshold for recognition. 9.Implies consensus. 10. Transactions between independent parties. a)Cost-effectiveness b) Representational faithfulness c) Recognitiond) Verifiability e) Time periods f) Unrealized g) Completeness h)Timeliness i) Materiality j) Predictive value k) Economic entity l)Lower-of-cost-or-market rule m) Phrenology n) Arm's-lengthtransactions Now that you have reviewed the terminology, for eachsituation listed below, indicate by letter the appropriatequalitative characteristic(s) or accounting concept(s) applied. Aletter may be used more than once, and more than one characteristicor concept may apply to a particular situation. Explain why youchose your answer.

1. Goodwill is recorded in the accounts only when it arises fromthe purchase of another entity at a price higher than the fairmarket value of the purchased entity's identifiable assets. 2. Landis valued at cost. 3. All payments out of petty cash are debited toMiscellaneous Expense. 4. Plant assets are classified separately asland or buildings, with an accumulated depreciation account forbuildings. 5. Periodic payments of $1,500 per month for services ofH. Hay, who is the sole proprietor of the company, are reported aswithdrawals. 6. Small tools used by a large manufacturing firm are^recorded as expenses when purchased. 7. Investments in equitysecurities are initially recorded at cost. 8. A retail storeestimates inventory rather than taking a complete physical countfor purposes of preparing monthly financial statements. 9. A notedescribing the company's possible liability in a lawsuit isincluded with the financial statements even though no formalliability exists at the balance sheet date. 10. Depreciation onplant assets is consistently computed each year by thestraight-line method. a) Understandability b) Verifiability c)Timeliness d) Representational faithfulness e) Neutrality f)Relevance g) Going concern h) Economic entity i) Historical cost j)Measurability k) Materiality l) Comparability

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ACCT 001 Lecture Notes - Lecture 16: Standard Accounting Practice, Current Liability, Conceptual Framework

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