NSU COMBO F/INTERM.ACCTG-CONNECT ACCESS
10th Edition
ISBN: 9781266020193
Author: SPICELAND
Publisher: MCG
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 20, Problem 20.4DMP
Analysis Case 20–4
Change in inventory methods; concepts
• LO20–2, LO20–3
Generally accepted accounting principles should be applied consistently from period to period. However, changes within a company, as well as changes in the external economic environment, may force a company to change an accounting method. The specific reporting requirements when a company changes from one generally accepted inventory method to another depend on the methods involved.
Required:
Explain the accounting treatment for a change in inventory method (a) not involving LIFO, (b) from the LIFO method, and (c) to the LIFO method. Explain the logic underlying those treatments. Also, describe how disclosure requirements are designed to address the departure from consistency and comparability of changes in accounting principle.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
Question 6
Indicate with the appropriate letter the nature of each situation described below:
Туре оf Chang
e
PR Change in policy reported retrospectively
P Change in policy reported prospectlively
E
Change in estimate
EC Emror comection
Not an accounting change
1. Settling a lawsuit for less than the amount accrued previousily as a provision.
2. Change from FIFO inventory costing to the weighted average inventory costing. However, the oumulative effect of the change cannot be determined.
3. Change by a retail store from recognizing refunds on an actual claims basis to the allowance method.
4. A shift of certain manufacturing overhead costs to inventory that previously were expensed as incurred to more acourately measure cost of goods sold. (Either method is acceptable.)
5. Change from cost model to fair value model for investment property
Problem 11-25 Multiple choice (IAA)
1. IFRS prohibits which cost flow assumption?
a. LIFO
b. Specific identification
6. Weighted average
i Any of these cost flow assumptions is allowed
с.
, What is the inventory pricing procedure in which the
oldest costs rarely have an effect on the ending
inventory?
a. FIFO
b. LIFO
c. Specific identification
d. Weighted average
3. In a period of falling prices which inventory method
generally provides the lowest amount of ending
inventory?
a. Weighted average
b. FIFO
c. Moving average
d. Specific identification
4. Which inventory cost flow assumption would consistently
result in the highest income in a period of rising prices
or inflation?
a. FIFO
b. LIFO
c. Weighted average
d. Specific identification
3. The costing of inventory must be deferred until the end
of reporting period under which of the following method of
inventory valuation?
a. Moving average
b. Weighted average
c. LIFÓ perpetual
d. FIFO perpetual
Question 8
Which of the following is an advantage of the periodic invêntory
system?|
frequent physical inventory counts
O cost prohibitive
time consuming
O real-time information for managers
Chapter 20 Solutions
NSU COMBO F/INTERM.ACCTG-CONNECT ACCESS
Ch. 20 - Prob. 20.1QCh. 20 - There are three basic accounting approaches to...Ch. 20 - Prob. 20.3QCh. 20 - Lynch Corporation changes from the...Ch. 20 - Sugarbaker Designs Inc. changed from the FIFO...Ch. 20 - Most changes in accounting principles are recorded...Ch. 20 - Southeast Steel, Inc., changed from the FIFO...Ch. 20 - Prob. 20.8QCh. 20 - Its not easy sometimes to distinguish between a...Ch. 20 - For financial reporting, a reporting entity can be...
Ch. 20 - Prob. 20.11QCh. 20 - Describe the process of correcting an error when...Ch. 20 - Prob. 20.13QCh. 20 - If it is discovered that an extraordinary repair...Ch. 20 - Prob. 20.15QCh. 20 - Prob. 20.5ECh. 20 - FASB codification research LO202 Access the FASB...Ch. 20 - Classifying accounting changes LO201 through...Ch. 20 - Classifying accounting changes and errors LO201...Ch. 20 - Prob. 20.3DMPCh. 20 - Analysis Case 204 Change in inventory methods;...Ch. 20 - Prob. 20.11DMP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- Question 63 Modified True or False T means Correct and F means Wrong I. The longer its customers normally hold inventory, the longer the credit period supplier firms normally offer. Still, suppliers have some flexibility in the credit terms they offer. If a supplier lengthens the credit period offered, this will shorten the customer's cash conversion cycle but lengthen the supplier firm's own CCC. II. The cash conversion cycle (CCC) combines three factors: The inventory conversion period, the receivables collection period, and the payables deferral period, and its purpose is to show how long a firm must finance its working capital. Other things held constant, the shorter the CCC, the more effective the firm's working capital management. III. The target cash balance is typically (and logically) set so that it does not need to be adjusted for either seasonal patterns or unanticipated random fluctuations. IV. A firm's peak borrowing needs will probably be overstated if it bases its…arrow_forwardQuestion no 6 Errors occasionally occur when physically counting inventory items on hand. Identify the financial statement effects of an overstatement of the ending inventory in the current period. If the error is not corrected, how does it affect the financial statements for the following year? How is it possible for a company to suffer a net loss for a given year, yet produce a positive net cash flow from operating activities?arrow_forwardO 4G l 46% I 17:26 Indicate by choosing the correct option whether the following statement is true or false: To determine the closing inventory amount when an entity uses the periodic inventory system, a physical inventory stock count is done at the end of the financial period. A. True O B. False Reset Selectionarrow_forward
- QUESTION 4 Which of the following is used to analyze the efficiency and effectiveness of inventory management? a. inventory turnover only b. number of days' sales in inventory only c. both inventory turnover and number of days' sales in inventory d. neither inventory turnover or number of days' sales in inventoryarrow_forward37 [Question text] The length of time between the purchase of inventory and the receipt of cash from the sale of that inventory is called_________________________. Select one: A. accounts payable period B. inventory period C. operating cycle D. accounts receivable periodarrow_forwardWhich of the following statements is not incorrect? I. PAS 2 requires the use of the Allowance Method in accounting for inventory write-down. II. There shall always be an allowance for inventory write-down if the net realizable value of inventories is lower than its cost. III. Regardless of what method the company uses in accounting for inventory write-down, the cost of goods sold must always be the same IV. A company may recognize a gain on reversal of inventory write-down even if the cost of inventory exceeds its net realizable value. a. I and II b. None of these c. II and III d. III and IV e. I and IVarrow_forward
- ning Objective 2 S6-2 Determining inventory costing methods Ward Hardware does not expect costs to change dramatically and wants to use an inventory costing method that averages cost changes. Requirements 1. Which inventory costing method would best meet Ward's goal? 2. Assume Ward wanted to expense out the newer purchases of goods instead. Which inventory costing method would best meet that need?arrow_forwardThe following information was extracted from the financial records of Mxo Limited at 28 February 2021, the end of the financial year. 2021 2020 R R Inventory 75 300 22 400 Other financial assets 130 000 125 000 Other financial liabilities 159 000 180 000 Trade receivables 57 300 47 400 Trade payables 32 900 28 500 Additional information: 1. The gross profit percentage is 38% on sales. 2. Purchases for the year amounted to R295 000 and 49% thereof were on credit. 3. Ratios reported in year ended 28 February 2020: Trade receivables collection period – 66.9 days Trade payables payment period – 64.9 days Inventory turnover rate – 6 times 4. Only 27% of the total sales were cash sales.arrow_forward35 Which inventory issue must be disclosed in the notes to financial statements? Price changes for customers Suppliers' net assets Average costs of inventory Transactions with related parties BOOKMARKarrow_forward
- Exercise 9-7 (Algo) Effects of inventory error LO 2 If the ending inventory of a firm is overstated by $49,000, by how much and in what direction (overstated or understated) will the firm's operating income be misstated? (Hint: Use the cost of goods sold model, enter hypothetically "correct" data, and then reflect the effects of the ending inventory error and determine the effect on cost of goods sold.) Operating income by overstated understatedarrow_forwardProblem 10-34 Multiple choice (IAA) 2. Which is a characteristic of a perpetual inventory system? d. Inventory does not affect net income b. Inventory records are not kept for every item. To determine cost of goods sold Inventory purchases are debited to a purchases account. To determine merchandise returns d. Goods available for sale minus cost of goods sold Why is inventory included in the computation of net income? 1. а. To determine sales revenue b. C. Inventory purchases are debited to a purchases account. a. с. Cost of goods sold is recorded with each sale. : Cost, of goods sold is determined as the amount of purchases less the change in inventory. , Which is incorrect about the perpetual inventory method? . Purchases are recorded as debit to the inventory account. b. The entry to record a sale includes a debit to cost of goods sold and a credit to inventory. c. After a physical inventory count, inventory is credited for any missing inventory. d. Purchase returns are recorded by…arrow_forwardQUESTION 7 The perpetual and periodic inventory systems are designed to ensure that inventory accounts are increased for the cost of purchases during the period and decreased for the cost of the sales during the period. True O Falsearrow_forward
arrow_back_ios
arrow_forward_ios
Recommended textbooks for you
Accounting Information SystemsFinanceISBN:9781337552127Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan HillPublisher:Cengage Learning
Individual Income TaxesAccountingISBN:9780357109731Author:HoffmanPublisher:CENGAGE LEARNING - CONSIGNMENT
Auditing: A Risk Based-Approach (MindTap Course L...AccountingISBN:9781337619455Author:Karla M Johnstone, Audrey A. Gramling, Larry E. RittenbergPublisher:Cengage Learning
Accounting Information Systems
Finance
ISBN:9781337552127
Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan Hill
Publisher:Cengage Learning
Individual Income Taxes
Accounting
ISBN:9780357109731
Author:Hoffman
Publisher:CENGAGE LEARNING - CONSIGNMENT
Auditing: A Risk Based-Approach (MindTap Course L...
Accounting
ISBN:9781337619455
Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg
Publisher:Cengage Learning
IAS 29 Financial Reporting in Hyperinflationary Economies: Summary 2021; Author: Silvia of CPDbox;https://www.youtube.com/watch?v=55luVuTYLY8;License: Standard Youtube License