Unit 1 Discussion 1

Inventory valuation methods are based on the systematic cash flow of adding and removing inventory costs. Each method has its advantages and disadvantages. When selecting an inventory method, management should select the method that best reflects operational needs. Last in, first out (LIFO) and first in, first out (FIFO) are two of the inventory methods that we have discussed. Assume that you are investing in a publicly traded company during a period of rising prices. Would you prefer that the company use LIFO or FIFO for inventory valuation? Please support your response.

A firm that uses LIFO accounting for inventory in times of rising investory costs will always report lower profit margins than if it used FIFO. Is this correct?

When a company determines that the net realizable value of its ending inventory is lower than its cost, what would be the effect(s) of the adjustment to write down inventory to net realizable value? a. Decrease total assets. b. Decrease net income. c. Decrease retained earnings. d. All of these answer choices are correct.

While you know that the balance sheet aging of receivables method is more accurate, it does require more company resources (e.g., time and money) that are currently applied elsewhere in the business. Using the income statement method is acceptable under generally accepted accounting principles(GAAP), but should you switch to the more accurate method even if your resources are constrained? Do you have a responsibility to the public to change methods if you know one is a better estimation?

Which statements below are true?  1. LCM and LCNRV may be applied by individual products, by product category or by total inventory. 2. A firm that wants to minimize the negative impact of inventory write-down on net income should apply LCM or LCNRV by individual products. 3. If inventory write-down is usual and not substantial, a firm should debit "Loss on inventory write-down” and credit "Inventory". 4. LCM and LCNRV applied by total inventory will result in higher value of inventory and lower inventory write-down than by individual products, by product category. 5. If inventory write-down is unusual and substantial, a firm should debit "Cost of good sold" and credit "Inventory".

Suppose an accountant discovers that the company holds substantial amounts of inventory that are now obsolete and worthless. Should the accountant report the truth, write off the inventory as an asset, and take a loss on obsolete inventory in earnings? Suppose the accountant also knows that the company is already in distress. Should the accountant seek ways to avoid or delay recognizing inventory losses that will cause the company to report lower earnings and thereby experience a drop in stock price and potential bankruptcy? What if the accountant knows the company is growing quickly and generating healthy profits?

Which one of the following statements is true? a. Income manipulation is difficult under LIFO.b. Accounting principles do not require that the inventory cost flow approximate the physical flow of goods.c. Companies may use LIFO for tax purposes and FIFO in the financial statements.d. In periods of declining prices, LIFO will result in the payment of less income taxes.

When a company's days of inventory on hand are increasing, this might indicate that: O The company is overstating inventory to reduce profits. O The company is expanding. O The company's inventory is obsolete.

The management of Milque Corp. is considering the effects of various inventory-costing methods on its financial statements and its income tax expense. Assuming that the price the company pays for inventory is increasing, which method will: (a) provide the highest net income? Select the inventory-costing method that will provide the highest net income (b) provide the highest ending inventory? Select the inventory-costing method that will provide the highest ending inventory (c) result in the lowest income tax expense? Select the inventory-costing method that will result in the lowest income tax expense (d) result in the most stable earnings over a number of years? Select the inventory-costing method that will result in the most stable earnings over a number of years

(ATTEMPT ALL THREE  Questions)a) Compare the periodic versus the perpetual system as a control device.  b) What sort of organisations are likely to use the periodic inventory system?What kind of organisations will prefer to use perpetual inventory system? c) If management overstated the valuation of inventory, would it affect profit for the year?  (Use your own words to avoid from plagirism)

A company may compute inventory under one of various cost flow assumptions. Among these assumptions are first-in, first-out (FIFO) and last-in, first-out (LIFO). In the past, some companies have changed from FIFO to LIFO for computing portions or all of their inventory. Required: Ignoring income tax, explain what effects a change from FIFO to LIFO has on a company’s net earnings and working capital.  Explain the difference between the FIFO assumption of earnings and operating cycle and the LIFO assumption of earnings and operating cycle.

?

vj subject-Accounting

Like many technology companies, TechnoTools operates in an environment of decliningprices. Its reported profits will tend to be highest if it accounts for inventory using the:A. FIFO method.B. LIFO method.C. weighted average cost method.

The net realizable value of Lake Corporation’s inventory has declined below its cost.Allyn Conan, the controller, wants to use the loss method to write down inventory because itmore clearly discloses the decline in the net realizable value and does not distort the cost ofgoods sold. His supervisor, financial vice president Bill Ortiz, prefers the cost-of-goods-soldmethod to write down inventory because it does not call attention to the decline in net realizablevalue.Instructions Answer the following questions:(a) What, if any, is the ethical issue involved?(b) Is any stakeholder harmed if Bill Ortiz’s preference is used?(c) What should Allyn Conan do?

Which of the following is an example of a conservative accounting practice? a. Estimate the allowance for uncollectible accounts to be a larger amount.b. Do not write down inventory for declines in net realizable value (estimated selling price).c. Record a lower amount of depreciation expense in the earlier years of an asset’s life.d. Record sales revenue before it is actually earned.

) Why might a company estimate ending inventory instead of performing a physical count? O The mathematical estimates can determine if inventory has been lost. O The mathematical estimates are more accurate than 'doing inventory. O The mathematical estimates take less time and are all acceptable under GAAP. The mathematical estimates result in greater job security for accounting staff. ?)

Here are some statements about production to stock: Production to stock is justified when the plant has excess production capacity. Inventory production is desirable to avoid wasting resources. Inventory production may be justified when the manufacturer is facing sharp fluctuations in demand for its products. Inventory production may lead to an increase in the accounting profit that will be reported in the near future. Which of the above statements is true / correct? One answer must be chosen: Only statements 3 and 4 are correct. Just say 2. Just say 1. Just say 3. Just say 4.

What do you think will happen to the financial performance of the company if at the end of the accounting period, the inventory level is high?