1.
Introduction: Financial statements are the position statement of the business that provide information related to the
The approach that should be taken into account for the change in inventory accounting.
2.
Introduction: Financial statements are the position statement of the business that provide information related to the profit earned or loss incurred during the period as well as the assets and liabilities a business owns at the end of the period. It helps in making future business decisions.
The need to restate financial statements prior to the year of the accounting change.
3.
Introduction: Financial statements are the position statement of the business that provide information related to the profit earned or loss incurred during the period as well as the assets and liabilities a business owns at the end of the period. It helps in making future business decisions.
The qualitative characteristic of accounting that describes the reason for the change in inventory method.
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INTERMEDIATE ACCOUNTING VOL 1&2 CONNECT
- What is the basic assumption underlying the gross profit method? How may the gross profit percentage for the prior year be modified to provide a better estimate of the inventory value?arrow_forwardHow long does it take an inventory error affecting ending inventory to correct itself in the financial statements? Explain.arrow_forwardWhat does an increase in inventory imply? How would this increase in inventory be reported under the indirect method?arrow_forward
- What is the impact of LIFO inventory liquidation on a companys interim financial statements?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_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_forward
- Do you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors as said to correct themselves. Market usually means replacement cost of inventory when applied in the LMC. Cost of goods available for sale equals the inventory plus cost of sales.arrow_forwardDo you agree with the following statements? Express your opinion on each statement. An inventory error that causes an understatement (or overstatement) for net income in one accounting period, if not corrected, will cause an overstatement (or understatement) in the next. Since an understatement (overstatement) of one period offsets the overstatement (understatement) in the next, such errors are said to correct themselves. Market usually means replacement cost of inventory when applied in the LCM. Cost of goods available for sale equals ending inventory plus cost of sales.arrow_forwardwhich of the following is not true regarding standards for interim reporting? a. declines in inventory value should be deferred to future interim periods b. use of the gross margin method for computing cost of goods sold must be disclosed c. costs and expenses not directly associated with interim revenue must be allocated to interim period on a reasonable basis d. gains and losses that arise in an interim period should be recognized in the interim period in which they arise if they would not normally be deferred at year endarrow_forward
- What needs to be considered when not only counting inventory, but likewise in the final valuation of inventory? Why is the inventory valuation so important for accounting purposes (for example, how would inventory errors affect the balance sheet and income statement - beginning vs. ending inventory). (**Hint - ending inventory for the initial period then becomes beginning inventory in the next reporting period - and both are used in the computation of cost of goods sold, used to compute gross profit in the income statement)arrow_forwardWhich income statement account(s) would be affected by a policy choice at the same time as the inventory balance sheet account. a. Bad debts expense b. Cost of goods sold expense c. Depreciation or amortisation expense d. Sales revenuearrow_forward
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