Exam 9: Working Capital

Brussels Products began its Belgian operations on January 1. The following is the journal entry for the total payroll for January of €60,000: €40,000 paid to factory workers and €20,000 paid to marketing and administrative personnel:

Which of the following is/are true regarding the Finished Goods Inventory account?

The lower-of-cost-or-market basis for inventory valuation is a conservative accounting policy because

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 FIFO cost-flow assumption.The cost of goods sold is _____, and the ending inventory is _____.

How do Merchandising and Manufacturing firms report product costs and changes in Inventory?

March Company is a European family-owned equipment business.Assume that March provides a two-year warranty on its products and that March estimates current year warranty costs to be 4% of sales revenues.At the end of last year, March's balance sheet carrying value of estimated warranty liabilities was €35,000.March will incur actual warranty costs over the two years following the time of sale.Assume that sales (all on account) and actual warranty expenditures (all paid in cash) were as follows: Sales Actual Warranty Expenditures Last Year 1,000,000 10,000 Current Year 1,400,000 45,000 REQUIRED: a.Prepare journal entries to recognize sales revenues, warranty costs, and warranty expenditures in for the two years.Closing entries are not required. b.What is the balance in the Warranty Liability account at the end of the current year?

Sparkle Industries began a period with 2,000 pounds of sugar and purchased 4,500 pounds during the period.Sparkle used 5,300 pounds during the period. How many pounds of sugar were available for sale or use during the period?

The longer a firm uses LIFO, the greater will be the difference between inventories based on LIFO and FIFO cost-flow assumptions.

Which of the following is not true regarding the lower-of-cost-or-market basis for inventory valuation?

The accounting for warranties resembles the allowance method for uncollectible accounts receivable.

(CMA adapted, Jun 96 #3) An item of inventory purchased in Year 5 for $25.00 has been incorrectly written down to a current replacement cost of $17.50.The item is currently selling in Year 6 for $50.00, its normal selling price.Which one of the following statements is correct?

On January 1, 20x3, Fallon Company, a manufacturer of consumer products, had a balance in direct materials inventory of $100,000.During the year, an additional $400,000 of direct materials were purchased.Also during 20x3, direct materials worth $450,000 were transferred to work-in-process inventory.What was Fallon Company's ending direct materials inventory at December 31, 20x3?

Managements face the decision as to when to replenish inventories at year-end.Assuming inflation, a company using LIFO would experience which of the following?

Both U.S.GAAP and IFRS require firms to write down inventories when their replacement cost, or market value, declines below acquisition cost.

Which of the following is true regarding the remeasurement of inventories upward to an amount exceeding their acquisition cost?

Discuss inventory accounting concepts and issues.

A deferred performance liability arises when a firm agrees to provide a warrantyfor service or repairs for some period after a sale.

An impediment to U.S.companies switching from U.S.GAAP to IFRS may come from the IFRS prohibition of LIFO which has negative income tax implications.

The sales manager of Sebastian Company failed to record a valid sale on account of merchandise that had been shipped to a customer prior to the end of the current year; however, the company uses a periodic method of accounting for inventory and the merchandise had been properly excluded from inventory at the end of the current year.As a result of this error, Sebastian Company's

Expenditures to satisfy warranty claims affect net income during the period of servicing the warranty.