ACC E272 Lecture Notes - Lecture 7: Historical Cost, Income Statement, Extension Method

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24 Dec 2020

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Consumer price index for urban consumers- ending inventory for the period at current. Cost/ ending inventory for the period at base year cost. Double extension method- a method that extends the value of the units in inventory at both base year prices and current year prices. You double extend the inventory, develop the index, then apply the index to the layer added to the most recent year. The lifo cost flow may approximate the physical flow of the goods in and out of. Lifo matches the more recent costs against current revenues to provide a better. Inventory profits- when the inventory costs matched against sales are less measurement of current earnings. This reduces inventory profits than the inventory replacement costs. Tax benefits: price level increases and inventory quantities don"t decrease which leads to lower income taxes b/c of their matching. Irs conformity rule- use same method for tax and financial accounting.

Related Questions

1. To determine the value of a LIFO layer,using dollar-value LIFO retail: (Points : 1)

Divide the LIFO layer bythe layer year price index and multiply by the layer yearcost-to-retail percentage.
Multiply the LIFO layerby the base year price index and the current year cost-to-retailpercentage.
Multiply the LIFO layerby the layer year price index and by the layer year cost-to-retailpercentage.
Divide the LIFO layer bythe layer year cost-to-retail percentage and multiply by the layeryear price index.

Question 2.2. To determine if an increase inthe dollar value of inventory is due to increased quantities, usingdollar-value LIFO retail: (Points : 1)

Compare beginning andending inventory amounts at current year prices.
Compare beginning andending inventory amounts after adjusting both amounts to theaverage price level for the year.
Inflate beginninginventory amount to end of year prices and compare to endinginventory amount.
Deflate the endinginventory amount to beginning of year prices and compare to thebeginning inventory amount.

Question 3.3. So. California Inc., through nofault of its own, lost an entire plant due to an earthquake on May1, 2006. In preparing their insurance claim on the inventory loss,they developed the following data: Inventory January 1, 2006,$300,000; sales and purchases from January 1, 2006, to May 1, 2006,$1,300,000 and $875,000, respectively. So. California consistentlyreports a 40% gross profit. The estimated inventory on May 1, 2006,is: (Points : 1)

$302,500.
$360,000.
$395,000.
$455,000.

Question 4.4. Using the dollar-value LIFOretail method for inventory,: (Points : 1)

Is the same asdollar-value LIFO, except that the inventory is measured at retail,rather than at cost.
Combines retail LIFOaccounting with dollar-value LIFO accounting
Allows companies toreport inventory on the balance sheet at retail prices.
All of the above arecorrect.

Question 5.5. Under the gross method, purchasediscounts taken are: (Points : 1)

Deducted from interestexpense.
Added to netpurchases.
Added to interestincome.
Deducted frompurchases.

Question 6.6. The inventory method that willalways produce the same amount for cost of goods sold in a periodicinventory system as in a perpetual inventory system would be:(Points : 1)

FIFO.
LIFO.
Weighted average.
None of the above.

Question 7.7. Cost of goods sold is given by:(Points : 1)

Beginning inventory - netpurchases + ending inventory.
Beginning inventory +accounts payable - net purchases.
Net purchases + endinginventory - beginning inventory.
Net Purchases + beginninginventory - ending inventory.

Question 8.8. An argument against the use ofLCM is its lack of: (Points : 1)

Relevance.
Reliability.
Consistency.
Objectivity.

Question 9.9. The primary reason for thepopularity of LIFO is that it gives: (Points : 1)

Better matching ofphysical flow and cost flow.
A deferral of incometax.
Simplifiedrecordkeeping.
A permanent reduction ofincome taxes.

Question 10.10. Inventory does not include:(Points : 1)

Materials used in theproduction of goods to be sold.
Assets intended to besold in the normal course of business.
Equipment used in themanufacturing of assets for sale.
Assets currently inproduction for normal sales.

1. How should the balances of Progress Billings and Constructionin Progress be shown at reporting dates prior to completion of along-term contract

a. Progress billings as income, construciton in progress asinventory

b. Net , as income from construction if credit balance, and lossfrom construction if debit balance

c. Progress Billings as deferred income, Construction inProgress as a current asset

d. Net, as a current asset if debit balance and currentliability if credit balance

3. the competed-contract method of accounting for long-termconstruction-type contracts is preferable when

a. a contractor is involved in numerous projects

b. the contracts are of a relatively long duration

c. estimates of costs to complete and extent of progress towardcompletion are reasonably dependable

d. there are inherent uncertainties in the contract beyondnormal business risks

4. C & J Construction has consistently used the percentageof completion method of recognizing income. Last year C & Jstarted work on a $4,500,000 constuction contract, which wascompleted this year, the accounting records desclosed the followingdata for the last year

Progress billings - $1,650,000

Costs incurred - 1,350,000

Collections - 1,050,000

Estimated cost to complete - 2,700,000

How much income should C & J have recognized on thiscontract last year?

a. 105,000

b. 150,000

c. 300,000

d. 350,000

6. The use of the gross profit assumes

a. the amount of gross profit is the same as in prior years

b. sales and cost of goods sold have not changed from previousyears

c. inventory values have not increased from previous years

d. the relationship between selling price and cost of goods soldis similar to prior years

7. the gross profit method of inventory valuation is not validwhen

a. there is substantial increase in the quantity of inventoryduring the year

b. there is substantial increase in the cost of inventory duringthe year

c. the gross margin percentage changes significantly during theyear

d. all ending inventory is destroyed by dire before it can becounted

8. When the current year's ending inventory amount isoverstated,

a. the current year's cost of goods sold is overstated

b. the current year's total assets are understated

c. the current year's net income is overstated

d. the next year's income is overstated

9. If the ending inventory balance is understated, net income ofthe same period

a. will be overstated

b. will be understated

c. will be unaffected

d. cannot be determined from the above information

10. An overstatement of ending inventory in Period 1 wouldresult in income of Period 2 being

a. overstated

b. understated

c. correctly stated

d. the answer cannot be determined from the informationgiven

11. what is the maximum amount at which inventory can be valuedwhen the goods have experienced a permanent decline in value

a. historical cost

b. sales price

c. net realizable value

d. net realizable value reduced by a normal profit margin

12. Net realizable value can be defined as

a. selling price

b. selling price less costs to complete and sell

c. selling price plus costs to complete and sell

d. acquisition cost plus costs to complete and sell

13. Miller company needs an estimate of its ending inventorybalance. The following information is available

Cost Retail

sales revenue - 180,000

beginning inventory - 35,000 62,000

net purchases - 100,000 135,000

gross margin percentage - 30%

Given this information, when using the gross margin estimationmethod, ending inventory is approx

a. 1,000

b. 9,000

c. 19,000

d. 11,650

14. Which of the following would not be reported asinventory?

a. land acquired for resale by a real estate firm

b. stocks and bonds held for resale by a brokerage firm

c. partially completed goods held by a manufacturing company

d. machinery acquired by a manufacturing company for use in theproduction process

15. Cost of goods sold is equal to

a. the cost of inventory on hand at the end of a period plus netpurchases minus the cost of inventory on hand at the beginning

b. the cost of inventory on hand at the beginning of a periodminus net purchases plus the cost of inventory on hand at the endof a period

c. the cost of inventory on hand at the beginning of a periodplus net sales minus the cost of inventory on hand at the end of aperiod

d. the cost of inventory on hand at the beginning of a periodplus net purchases minus the cost of inventory on hand at the endof a period

17. In a period of falling prices, the use of which of thefolliwng inventory cost flow methods would typically result inhighest cost of goods sold?

a. FIFO

b. LIFO

c. Weighted average cost

d. Specific identification

18. In a period of rising prices, the inventory cost allocationmethod that tends to result in the lowest reported net incomeis

a. LIFO

b. FIFO

c. Moving average

d. Weighted average

19. The LIFO inventory cost flow method may be applied to whichof the following inventory systems?

Periodic Perpetual

a. no no

b. no yes

c. yes yes

d. yes no

tanrabbit20

GOOGLE: MorningstarÂ® Document Research FORM 10-K GENERAL MILLS INC - GIS Filed: June 29, 2017 (period: May 28, 2017) Annual report with a comprehensive overview of the companyâ FOR THE ANNUAL REPORT

Instructions: Use the financial statements from the annual report for the year ended 5/28/2017 for General Mills. The Annual Report is on MOODLE. Answer the questions after each question. Use a different font to distinguish your answer from the question. All answers should be in your own words. Do not cut and paste from the annual report. Answers will be graded for content and written communication skills. Use complete sentences.

*****MAKE A NOTATION HERE IF THE DOLLAR AMOUNTS ARE STATED IN MILLIONS.

1. Who are the external auditors for General Mills? What does their Report of Independent Registered Public Accounting firm indicate about the amounts represented in the companyâs financial statements?

2. What specific title does General Mills use for its income statement? What type of income
statement does General Mills issue? (multi-step, singleâstep, or condensed multi-step)
Explain.

3. Did they disclose EPS as discussed in class? Explain. What about the EPS presentation
did we not discuss in ACC 3100?

4. How does General Mills define Cash Equivalents? Is this consistent with the textbook?

5. What is the amount of cash and cash equivalents reported for the year ended at May 28, 2017 and for the year ended at May 29, 2016. By how much has cash and cash equivalents increased/decreased? Show calculations.

6. Create a table illustrating the amount General Mills reports for net cash flows from operating, investing, and financing activities in its statement of cash flow for the year ended May 28, 2017. (Note: Include any effect of exchange rates on cash.) Show calculations. Compare your answers to question 5.

7. What amount is the balance in the Allowance for Doubtful Accounts at 5/28/2017? How is the estimate for Allowance for Doubtful Accounts determined?

8. What was the gross balance of trade receivables at 5/28/2017? What was the dollar amount of bad debt expense for the year ended 5/28/2017? How many accounts were written off (Dollar amount)?

9. What inventory method is used to value inventory in and out of the US?

10. What is the balance of their LIFO reserve account 5/28/2017?

11. What impact (dollar amount and increase or decrease) did the LIFO Reserve adjustment have on Cost of Goods Sold?

12. Which depreciation method(s) is used for PP& E? What estimates are made for the useful life of the different categories of assets?

13. What was total depreciation and amortization expense fiscal year ended 5/28/2017? Where were these amounts reported in the financial statements?

14. What was the major component of total PP&E? What was its amount and what percentage was it of the total for the year ended 5/28/2017?

15. What percentage of total PP&E has been depreciated as of 5/28/2017?

16. Did General Mills capitalize any interest in the fiscal year ended 5/28/2017? If so, what was the amount?

17. Did General Mills dispose of any property and equipment during the year ended 5/28/2017? If so, what was the cash proceeds?

18. Did General Mills issue more new long term debt than they paid in long term debt payments for the year ended 5/28/2017? Explain, show amounts.

19. Create a table to show the components of Comprehensive Income that was attributable to General Mills for the year ending 5/28/2107?

20. Create a table to show the components and amounts of General Millsâ Accumulated Other Comprehensive income(loss) for the year ending 5/28/2017 and 5/29/2016?

21. When does General Mills review impairment for long-lived assets? What is their measurement of an impairment loss based on for long-lived assets?

22. What is the amount of General Mills goodwill? Did General Mills have an impairment loss on Goodwill during fiscal year ended 5/28/2017? What are the standards for testing goodwill(How often and how is it tested)?

23. List any other indefinite life intangibles? How much was the impairment loss General Mills recorded for fiscal year ending 5/31/2015 and why was impairment indicated?

24. The Financial Accounting Standards Board (FASB) issued two new accounting requirements in 2017 that were mentioned in General Millsâ annual report? What are the standards and what is the expected impact of these new standards to the financial statements?

25. General Mills uses the three-level fair value hierarchy for disclosure. What level are the majority of their assets and liabilities measured at 5/28/2017? According to your textbook, how is this level defined?

26. When does General Mills recognize revenue? Do they handle consistently with the material presented in ACC 3100?

27. What was General Millsâ current ratio and working capital as of 5/28/2017? Show calculations.

28. Is the Statement of Changes in Stockholderâs Equity (Consolidated Statements of Total Equity, and Redeemable Interest) consistent with what we learned in class? Explain-indicate similarities and differences.

29. According to the MD&A (begins on p. 15) did General Millsâ Selling, general, and
administration expenses increase or decrease in fiscal year ended 5/28/2017? What was
the primary reason for the change?

30. In two detailed paragraphs, indicate a couple of interesting items you learned while
reading this annual report.

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ACC E272 Lecture Notes - Lecture 7: Historical Cost, Income Statement, Extension Method

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