Chapter 8

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Chapter 8
2010-12-14 14:22:47

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  1. The periodic inventory system uses what accounts?

    • Inventory (ending, by count)
    • COG sold
    • Purchases
    • Inventory (beginning)
  2. The perpetual inventory system uses what accounts?
    Inventory, Cost of Goods Sold
  3. Include good in transit in inventory?
    Check fob shipping point or destination
  4. Include Consigned Goods in Inventory?
    The inventory of the consignor until sold
  5. Sales with Buyback agreement in inventory?
    They should be reported in inventory of the original owner when there is a repurchase agreement at a set price which covers all costs of the inventory plus related holding costs
  6. Sales with High Rates of Return in Inventory?
    When the company can reasonably estimate the amount of the returns, it should consider the goods sold
  7. Sales on Installment in Inventory?
    When the amount of bad debts can be reasonably estimated, the seller can exclude the goods from its inventory
  8. Net Realizable Value
    Selling Price less costs of disposal

    This is the "ceiling"
  9. Net realizable value less profit margin
    The "floor" for determining designated market value
  10. The 3 items to compare when determining the designated market value
    Net Realizable Value

    NRV less profit margin

    replacement cost

    The MIDDLE value is used at the designated market value
  11. What 2 items are compared in LCM?
    The designated market value and the original cost
  12. Gross Profit method for estimating inventories especially if there is a disaster or records are destroyed
    • Beg Inv (at cost)
    • add: Purchases (at cost)
    • Goods Available for sale (at cost)

    • Sales (at selling price)
    • less: Gross profit (%)
    • Sales (at cost)

    • Goods Available for sale (at cost)
    • less: Sales (at cost)
    • Approx. ending inventory (at cost)
  13. If gross profit is 25% of cost, how is the percentage of sales determined?
    • %
    • 1+%= % of sales
  14. Retail Inventory Method
    • Beginning Inventory (at cost) (at retail)
    • add: NET purchases (at cost) (at retail)
    • add: NET mark ups (at retail)
    • Cst of Gds avail for sale (at cost) (retail)
    • less: Sales (at retail)
    • less: Markdowns
    • Ending inventory at retail
    • multiply: Cost-to-retail ratio
    • Ending inventory at cost
  15. Conventional retail method
    Results in the most conservative ending inventory AND estimates the LCM

    This only takes MARKUPS into consideration when computing cost-to-retail ratio

    Therefore, the cost-to-retail ratio is the lower than other retail inventory methods

    MARKUPTS are subtracted after subtracting sales
  16. Retail LIFO
    Beginning inventory is NOT figured into the cost-to-retail ratio

    However, BOTH markups and markdowns are figured into the cost-to-retail ratio


    • Purchases (at cost) (at retail)
    • add: NET markups
    • less: NET markdowns
    • cst gds avail sale (at cost) (at retail)
    • (TAKE cost-to-retail ratio here)
    • add: beginning inventory
    • less: sales
    • Ending inventory
    • multiply by cost-to-retail ratio
    • Ending inventory under LIFO retail
  17. Dollar Value Retail LIFO
    NO beginning inventory

    • Net purchases (at cost) (at retail)
    • add: NET mark ups
    • less: NET markdowns
    • Goods avail for sale (cost) (retail)
    • *take cost-to-retail ratio here*
    • less: Sales (at retail)
    • Increment at retail
    • add: Beginning inventory
    • Ending INventory at retail
    • multiply cost-to-retail ratio
    • Ending inventory under dollar value retail LIFO