intermed acct spiceland Ch 9.txt

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Author:
isatonk
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146520
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intermed acct spiceland Ch 9.txt
Updated:
2012-04-09 08:09:20
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Intermediate Accounting Spiceland Ch9
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Condensed form of the flashcards provided by McGrawHill on the books' website
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  1. How does GAAP define market value for lower-of-cost-or-market purposes?
    GAAP define market value for LCM purposes as replacement cost (by purchase or reproduction) except that market should not:

    a. Exceed the net realizable value (i.e., estimated selling price in the ordinary course of business less reasonably predictable costs of completion and disposal)

    b. Be less than: net realizable value - allowance for an approximately normal profit margin.
  2. How does the gross profit method estimate cost of goods sold and ending inventory?
    • cost of goods avail.
    • - est. cogs [historical gpr x net sales = est. gp; net sales - est gp = est cogs]
    • = est ending inventory
  3. In its simplest form, how does the retail inventory method estimate ending inventory and cost of goods sold?
    • goods avail @retail
    • - sales @retail

    • = est ending inventory @retail
    • x cost-to-retail% (= goods avail @cost / goods avail @retail)

    = est ending inventory @cost
  4. How is the cost-to-retail percentage calculated using the average cost method?
    cost-to-retail% = goods avail @cost / goods avail @retail

    include markups and markdowns
  5. How is the cost-to-retail percentage calculated using the lower-of-cost-or-market method?
    also called conventional retail method

    cost-to-retail% = goods avail @cost / goods avail @retail

    include only markups
  6. How is a change in inventory method other than a change to LIFO treated?
    Changes in inventory methods, other than a change to the LIFO method, are reported retrospectively. This means reporting all previous periods' financial statements as if the new inventory method had been used in all prior periods.
  7. How is a change in inventory method to LIFO treated?
    Accounting records usually are inadequate for a company changing to LIFO to report the effect on prior years' income. Instead, the LIFO method simply is used from that point on. The base year inventory for all future LIFO determinations is the beginning inventory in the year the LIFO method is adopted.

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