ACC 311 Lecture Notes - Lecture 9: Cost Accounting, European Cooperation In Science And Technology, Matching Principle

165 views18 pages

crimsoncod838

12 Dec 2017

School

University of Miami

Department

Accounting Business Administration

Course

ACC 311

Professor

andrewmcmartin

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

The retail inventory method is suitable for companies that track the retail value (sales price) of their inventories. For example, some companies will know the retail value of their ending inventory because list prices are included in the year-end physical inventory count. The retail inventory method deflates the retail value of ending inventory to a cost basis by the cost-to-retail ratio. Three basic steps in computing all retail inventory problems: compute ending inventory at retail. This step is the same regardless of which variation (lifo cost or average lcm) is used: compute the cost-to-retail ratio. Xx,xxx: apply the cost-to-retail ratio to the ending inventory at retail to obtain the ending inventory at cost or at lcm. Ending inventory = ,000 x 65% = ,750. The lifo retail inventory method: the retail inventory method can easily be extended to accommodate lifo layers. Each lifo layer uses its own cost-to-retail ratio.

Related Questions

1. To determine the value of a LIFO layer,using dollar-value LIFO retail: (Points : 1)

Divide the LIFO layer bythe layer year price index and multiply by the layer yearcost-to-retail percentage.
Multiply the LIFO layerby the base year price index and the current year cost-to-retailpercentage.
Multiply the LIFO layerby the layer year price index and by the layer year cost-to-retailpercentage.
Divide the LIFO layer bythe layer year cost-to-retail percentage and multiply by the layeryear price index.

Question 2.2. To determine if an increase inthe dollar value of inventory is due to increased quantities, usingdollar-value LIFO retail: (Points : 1)

Compare beginning andending inventory amounts at current year prices.
Compare beginning andending inventory amounts after adjusting both amounts to theaverage price level for the year.
Inflate beginninginventory amount to end of year prices and compare to endinginventory amount.
Deflate the endinginventory amount to beginning of year prices and compare to thebeginning inventory amount.

Question 3.3. So. California Inc., through nofault of its own, lost an entire plant due to an earthquake on May1, 2006. In preparing their insurance claim on the inventory loss,they developed the following data: Inventory January 1, 2006,$300,000; sales and purchases from January 1, 2006, to May 1, 2006,$1,300,000 and $875,000, respectively. So. California consistentlyreports a 40% gross profit. The estimated inventory on May 1, 2006,is: (Points : 1)

$302,500.
$360,000.
$395,000.
$455,000.

Question 4.4. Using the dollar-value LIFOretail method for inventory,: (Points : 1)

Is the same asdollar-value LIFO, except that the inventory is measured at retail,rather than at cost.
Combines retail LIFOaccounting with dollar-value LIFO accounting
Allows companies toreport inventory on the balance sheet at retail prices.
All of the above arecorrect.

Question 5.5. Under the gross method, purchasediscounts taken are: (Points : 1)

Deducted from interestexpense.
Added to netpurchases.
Added to interestincome.
Deducted frompurchases.

Question 6.6. The inventory method that willalways produce the same amount for cost of goods sold in a periodicinventory system as in a perpetual inventory system would be:(Points : 1)

FIFO.
LIFO.
Weighted average.
None of the above.

Question 7.7. Cost of goods sold is given by:(Points : 1)

Beginning inventory - netpurchases + ending inventory.
Beginning inventory +accounts payable - net purchases.
Net purchases + endinginventory - beginning inventory.
Net Purchases + beginninginventory - ending inventory.

Question 8.8. An argument against the use ofLCM is its lack of: (Points : 1)

Relevance.
Reliability.
Consistency.
Objectivity.

Question 9.9. The primary reason for thepopularity of LIFO is that it gives: (Points : 1)

Better matching ofphysical flow and cost flow.
A deferral of incometax.
Simplifiedrecordkeeping.
A permanent reduction ofincome taxes.

Question 10.10. Inventory does not include:(Points : 1)

Materials used in theproduction of goods to be sold.
Assets intended to besold in the normal course of business.
Equipment used in themanufacturing of assets for sale.
Assets currently inproduction for normal sales.

1. Claremont Corp has the following inventory balances for 2009:beginning, $468,000; ending, $444,000. The companyâs cost of goodssold for the year was $4,370,400.

What was Claremont Corp.âs average inventory for 2009?

What is the companyâs inventory turnover ratio?

Calculate the average age of inventory for Claremont Corp.

Assume that Claremont Corp is a retail toy company, and itsfiscal year-end is December 31. Would Claremontâs inventory be atan annual high or low at the end of the year? In this situation,would the inventory turnover ratio provide valid information to adecision maker? Why or why not?

Given the information in Part D, how might you obtain a betterindication of the average amount of inventory that Claremont Corphand on-hand during the year?

2. Itâs Good, YâAll! is a Texas-based company that operates alarge chain of restaurants. The following information is availablefor the company (in thousands):

Category	2007	2008	2009
Net Sales	$400,577	$517,616	$640,898
Cost of Goods Sold	$130,885	$171,708	$215,071
Net Income	$33,943	$46,652	$57,497
Ending Inventory	$23,192	$28,426	$41,989

Compute the companyâs inventory turnover ratio and age ofinventory for 2007 through 2009. Beginning inventory for 2007 was$15,746,000.

Comment on the ratios computed in Part A. Are there any definitetrends in theses ratios? If so, are these trends favorable orunfavorable? Explain.

Why do decision makers pay close attention to the age of aninventory statistic for companies in the restaurant industry?

3. Li Enterprises recently purchased new computer equipment forits company headquarters. The following is information regardingthe various cash expenditures related to the acquisition of thisequipment:

The invoice price of the equipment was $300,000, however, Liâsowner negotiated a 15% price reduction.

The equipment was shipped to Liâs headquarters FOB shippingpoint. The delivery cost was $2,750.

Li paid $1,870 to hire a computer consultant to install and testthe new equipment.

Supplies costing $135 were used in installing and testing theequipment.

The day following the installation of the equipment, one of Liâsemployees broke a USB port on the computer equipment. The companypaid $265 to have the port replaced.

Determine the acquisition cost of the computer equipment foraccounting purposes.

A computer purchased for several thousand dollars may havelittle resale value one year later because of technological changesin the computer industry. Given that the resale value of computersand computer equipment can decline rapidly, is historical cost theproper valuation basis to use for such assets? Defend youranswer.

peachbee229

Marathon Petroleum Corporation disclosed the following in its 2015 annual report. The company reported revenues and cost of revenues of $75,384 million and $57,138 million respectively in 2015.

Inventories are stated at the lower of cost or market. Costs of crude oil, refinery feedstocks and refined products are aggregated on a consolidated basis for purposes of assessing if the LIFO cost basis of these inventories may have to be written down to market values. At December 31, 2015, market values for these inventories, which totaled approximately 4.0 billion gallons, were lower than their LIFO cost basis and, as a result, we recorded an inventory valuation charge of $345 million to cost of revenues to value these inventories at the lower of cost or market.

a. Compute gross profit margin for 2015. Round answer to one decimal place (ex: 0.2345 = 23.5%) Answer%

b. What would gross profit margin and the gross profit margin percentage have been if the company had not had to record the lower of cost or market adjustment? Round answer to one decimal place (ex: 0.2345 = 23.5%) Answer%

c. At the end of the year, Marathonâs LIFO reserve was $684 million. If the company had used FIFO, what would the inventory valuation charge have been? $Answer million

Please show steps.

pucehorse300

ACC 311 Lecture Notes - Lecture 9: Cost Accounting, European Cooperation In Science And Technology, Matching Principle

Document Summary

Get access

Related Documents

ACC 311 Lecture Notes - Lecture 8: Perpetual Inventory, Retained Earnings, Trial Balance

ACC 113 Lecture Notes - Lecture 29: Tax Deferral, Gross Profit, Balance Sheet

Related Questions