Exam 9: Working Capital

LIFO is like a stack of trays in a cafeteria: the last tray deposited on the stack is the first one taken off, and the lowest tray in the stack remains there as long as any trays remain.

For manufacturing firms, the cost of completed products remains on the balance sheet as __________ assets until the firm sells the products; upon sale, the cost of the assets becomes a cost of goods sold expense.

U.S.GAAP and IFRS requires firms to use a cost-flow assumption that matches the actual physical flow of units within the firm.

Which of the following is/are true regarding the Raw Materials Inventory account?

FIFO is like a conveyor belt: the first items put on the conveyor belt come off first for use or sale, while the last items put on the conveyor belt remain there at the end of the period.

The lower-of-cost-or-market basis for inventory valuation

Flower Company had beginning inventory of $19,000, purchases were $100,000, and ending inventory had a cost of $25,000 and a market value of $20,000.Which of the following is/are not true?

The following items appear in the post-closing trial balance for March 1 and on the adjusted, preclosing trial balance at March 31 of Parker Company.Parker Company prepares financial statements monthly. March 1 March 31 Raw materials \ 10,000 \ 8,000 Work in process 15,000 25,000 Finished goods inventory 10,000 14,000 Sales (Cr balance) - 600,000 Allowance for uncollectible accounts (Cr balance) 6,000 10,000 $\text { During the month of March, Parker Company incurred the following costs: }$ Raw materials used in production \ 130,000 Labor costs used in production 80,000 Labor costs used in administration and marketing 10,000 Factory overhead costs for production 60,000 Office administration costs, other than labor 12,000 Accounts receivable written off as uncollectible 9,000 Required: a. What was the acquisition cost of raw materials purchased during the month of March? b. What was the total cost of goods completed during the month of March? c. What was the Cost of Goods Sold during the month of March? d. What was the Uncollectible account expense for the month of March? e. What was the Income (before taxes) for the month of March? f. Explain briefly why no amount for sales appears in the March 1 trial balance.

Of the three cost-flow assumptions, when inventory costs have been falling and inventory amounts increasing, LIFO results in balance sheet figures that are _____, cost of goods sold will _____, and _____ reported net income

City Bicycle City Bicycle , a cycling store has a beginning inventory of one bi-level touring bicycle 1, for which it paid $2,500.Suppose that during the period the store purchases bi-level touring bicycle 2 for $2,900 and bi-level touring bicycle 3 for $3,000, and that it sells one bicycle for $5,500.The three bicycles are physically identical; the store acquired them at different times as their acquisition costs changed, so only their costs differ. Using the City Bicycle example, suppose the cycling store uses the specific identification system, and uses serial numbers or product bar codes to identify bi-level touring bicycle 2 as the unit sold.The cost of goods sold is _____, and the ending inventory is _____.

In periods of rising purchase prices and increasing inventory quantities, LIFO results in a _____ than either FIFO or the weighted-average cost-flow assumption.

Of the three cost-flow assumptions, FIFO results in the least fluctuation in gross margins in businesses in which selling prices tend to change as acquisition costs of inventories change.

Many firms provide similar types of airline services with similar types of assets.They each received unqualified opinions from their independent auditors.Yet, Flash Airlines appears to apply its accounting principles more aggressively in income-enhancing ways relative to its competitors.The choices for Flash Airlines in applying generally accepted accounting principles under the accrual basis of accounting include:

IFRS specifies that, in the context of inventories, market means

The following data relate to the manufacturing activities of Friends Industries for the month of March: March 1 March 31 Raw Materials Inventory \ 42,300 \ 40,600 Factory Supplies Inventory 9,600 9,800 Work-In-Process Inventory 102,200 103,100 Finished Goods Inventory 48,700 47,300 $\text { Friends incurred the following manufacturing costs during March: }$ Raw materials purchased 83,500 Supplies purchased 14,300 Wages 186,800 Utilities 1,250 Insurance 550 Depreciation 3,100 Rent 4,400 (Note: Friends Industries treats all raw materials used in production, as well as all wages incurred for production, as direct in nature and such costs are not included in manufacturing overhead.) Compute Friends' cost of goods sold for March.

Cash includes:

Winner Company's beginning and ending inventories for the fiscal year ended September 30, Year 5, are October 1, Year 4 September 30. Year 5 Raw materials \ 15,000 \ 22,000 Work-in-process 40,000 35,000 Finished goods 8,000 12,000 $\text { Production data for the fiscal year ended September } 30 \text {, Year } 5 \text {, are }$ Raw materials purchased \ 80,000 Purchase discounts 1,000 Direct labor 100,000 Manufacturing overhead 75,000 Assume Winner Company treats all raw materials as direct materials once they enter the production process.Thus, no raw materials are treated as manufacturing overhead. (CMA adapted, Dec 95 #28) Refer to the Winner Company example.Cost of goods sold for the year ended September 30, Year 5, for Winner Company is

On August 1, Covington Motors pays £18,000 for insurance coverage for the next 12 months.On August 1, the firm records the following journal entry:

On December 31, 2012, Holland Group reported a balance in Restructuring Provisions of €50.9 million, of which €12.5 million was expected to be paid in 2013, with the remainder to be settled during 2014-2015.The balance in this account at the start of the year was €84.0 million.During 2012, assume that Holland accrued restructuring charges of €14.2 million, and reversed €7.3 million of previous charges. REQUIRED: a.Prepare all journal entries Holland made during 2012 related to its restructuring activities. b.How will Holland report its Restructuring Provision on its balance sheet for the year ended December 31, 2012? c.What is the effect of Holland's 2012 restructuring activities on its income statement? How are these activities displayed on the statement of cash flows? Ignore tax effects.

The market value for inventory valuation purposes generally means