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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Inventory Write-Down The following information for Tuell Company is available:

Chapter 8, Problem 4E, Inventory Write-Down The following information for Tuell Company is available: Required: 1. Assume

Required:

  1. 1. Assume Tuell uses the LIFO cost flow assumption. What is the correct inventory value in each of the preceding situations under U.S. GAAP?
  2. 2. Assume Tuell uses the average cost inventory cost flow assumption. What is the correct inventory value in each of the preceding situations under U.S. GAAP?
  3. 3. Assume that Tuell uses the average cost inventory cost flow assumption. What is the correct inventory value in each of the preceding situations if Tuell uses IFRS?

1.

To determine

Calculate the correct value of inventory in each of the preceding situation under U.S. GAAP (if T uses LIFO method).

Explanation

Inventory write-down: As per GAAP (Generally Accepted Accounting Principles), the companies are required to determine the cost of the ending inventory at the end of the each reporting period. Thus, when a company finds that the amount of benefit expected from the ending inventory is below its cost, it  passes an adjusting journal entry to reduce the reported inventory amount and the net income for that period. Hence, the adjusting journal entry that is recorded at the year-end is known as inventory write-down.

LIFO: Under this inventory method, the units that are purchased last are sold first. Thus, it starts from the selling of the units recently purchased and ending with the beginning inventory.

Calculate the correct value of inventory in each of the preceding situation under U.S. GAAP (if T uses LIFO method)...

2.

To determine

Calculate the correct value of inventory in each of the preceding situation under U.S. GAAP (if T uses average cost method).

3.

To determine

Calculate the correct value of inventory in each of the preceding situation under IFRS (if T uses average cost method).

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