Question

In: Accounting

1.a.)When using FIFO for inventories, market value generally refers to under U.S. GAAP and ...

1.a.)When using FIFO for inventories, market value generally refers to ________ under U.S. GAAP and ________ under IFRS.

A) current replacement cost; historical cost

B) historical cost; net realizable value

C) historical cost; current replacement cost

D) net realizable value; net realizable value

b. Margaret Company reported the following information for the current year:

Net sales	$3,000,000
Purchases	$1,957,000
Beginning Inventory	$245,000
Ending Inventory	$115,000
Cost of Goods Sold	65% of sales

Industry Averages available are:

Inventory Turnover	5.29
Gross Profit Percentage	28%

How do the inventory turnover and gross profit percentage for Margaret Company compare to the industry averages for the same ratios? (Round inventory turnover to two decimal places. Round gross profit percentage to the nearest percent.)

A) Margaret Company has superior gross profit percentage and inventory turnover.

B) Margaret Company has superior gross profit percentage and inferior inventory turnover.

C) Margaret Company has inferior gross profit percentage and superior inventory turnover.

D) Margaret Company has inferior gross profit percentage and inventory turnover.

c.)Ending inventory for the year ended December 31, 2019, is understated by $8,000. How will this affect net income for 2019 and 2020?

A) Net income will be understated by $8,000 in 2019 and 2020.

B) Net income will be overstated by $8,000 in 2019 and 2020.

C) Net income will be understated by $8,000 in 2019 and overstated by $8,000 in 2020.

D) Net income will be overstated by $8,000 in 2019 and understated by $8,000 in 2020.

d.) Ending inventory for the year ended December 31, 2019, is understated by $23,000. How will this error affect net income for 2020?

A) Net income will be understated by $46,000.

B) Net income will be overstated by $46,000.

C) Net income will be understated by $23,000.

D) Net income will be overstated by $23,000.

e.) Beginning inventory for the year ended December 31, 2019, is understated. How will this error affect net income for 2019 and 2020?

A) 2019 overstated; 2020 understated

B) 2019 understated; 2020 overstated

C) 2019 overstated; 2020 no effect

D) 2019 understated; 2020 no effect

f.)Beginning inventory for the year ended December 31, 2019, is understated. How will this error affect net income for 2019 and 2020?

A) 2019 overstated; 2020 understated

B) 2019 understated; 2020 overstated

C) 2019 overstated; 2020 no effect

D) 2019 understated; 2020 no effect

Solutions

Expert Solution

1 )Ans is B

In GAAP, inventory is recorded as cost or market value – whichever is less.

In IFRS, inventory should be recorded as cost or net realizable value – whichever is less.

2)Option B is Correct.

Gross Profit Percentage = Gross Profit / Net Sales * 100
Gross Profit = Sales – Cost of Goods Sold
Cost of Goods Sold = $3000000 * 65%
Cost of Goods Sold = $1950000

Gross Profit = $3000000 - $1950000
Gross Profit = $1050000

Gross Profit Percentage = 1,050000 / 3000000 * 100
Gross Profit Percentage = 35%

Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (245,000 + 115,000) / 2
Average Inventory = $180000

Inventory Turnover = 1950000 / 180000
Inventory Turnover = 10.83 times

Conclusion:
Margaret Company has inferior Gross Profit percentage and superior Inventory Turnover.

3) option C is correct

if ending inventory is understated net income is understated and in year 2 beginning inventory is over stated so net income will be overstated. Net income will be understated by $8,000 in 2019 and overstated by $8,000 in 2020.

4) option d is correct

Ending inventory for the year ended December 31, 2019, is understated by $23,000. this error will affect net income for 2020 then Net income will be overstated by $23,000.

5)Option A is correct

If you understated beginning inventory, your cost of goods sold will be understated by the error amount. Then, since cost of goods sold is understated, your net income and gross profit are overstated. next year it will understate

6)same as ans 5

ekkarill92 answered 4 months ago

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1.a.)When using FIFO for inventories, market value generally refers to ________ under U.S. GAAP and ________...

Solutions

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