Method of Inventory: Inventory refers to the current assets that a company expects to sell during the normal course of business operations, the goods that are under process to be completed for future sale, or currently used for producing goods to be sold in the market. Inventory is valued under three methods:
FIFO: Under this inventory method, the units that are purchased first, are sold first. Thus, it starts from the selling of the beginning inventory, followed by the units purchased in a chronological order of their purchases took place during a particular period.
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.
Average cost method: Under this method, the cost of the goods available for sale is divided by the number of units available for sale during a particular period.
To Explain: the difference in the accounting treatment of a change to the LIFO inventory method from other inventory method changes.
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Chapter 9 Solutions
INTERMEDIATE ACCOUNTING (LCPO)
- How do the perpetual and periodic inventory accounting systems differ from each other?arrow_forwardWhat are the exceptions to historical cost valuation of inventory allowed under generally accepted accounting principles?arrow_forwardWhat inventory costing methods are allowed under IFRS? How does this differ from the treatment under U.S. GAAP?arrow_forward
- Which of the following financial statements would be impacted by a current-year ending inventory error, when using a periodic inventory updating system? A. balance sheet B. income statement C. neither statement D. both statementsarrow_forwardParsons Inc. has proposed a change from one inventory accounting method to another for financial reporting purposes. The auditor indicates that a change would be permitted only if it is to a preferable method. What difficulties develop in assessing preferability?arrow_forwardAccess the FASB Accounting Standards Codification at the FASB website ( asc.fasb.org ). Determine the specific citation for accounting for each of the following items: 1. Reporting most changes in accounting principle. 2. Disclosure requirements for a change in accounting principle. 3. Illustration of the application of a retrospective change in the method of accounting for inventory.arrow_forward
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