Exam 9: Working Capital

Fabulous Engine Company is a wholesaler of marine engine parts.The activity of carburetor 2642J during the month of March is presented below. Balance or Unit Date Transaction Units Unit Cost Sales Price March 1 Inventory 3,200 \ 64.30 \ 86.50 4 Purchase 3,400 64.75 87.00 14 Sales 3,600 87.25 25 Purchase 3,500 66.00 87.25 28 Sales 3,450 88.00 (CMA adapted, Jun 96 #13) Refer to the Fabulous Engine Company example.If Fabulous uses a last-in, first-out periodic inventory system, the total cost of the inventory for carburetor 2642J at March 31 is

Under U.S.GAAP, firms recognize restructuring costs when the firm has committed to and approved a restructuring plan that management will control.

Working capital is the difference between a firm's current assets and its current liabilities.

The lower-of-cost-or-market basis results in reporting

Ethical issues may arise when management dips into LIFO layers

During June, SoundHouse sold 800 portable CD players for $50 each. Each CD player cost SoundHouse $25 to purchase and carried a one-year warranty. If 10 percent typically need to be replaced over the warranty period, what amount should SoundHouse debit Product Warranty Expense for in June?

Lager Company sells merchandise with a one year warranty. In 2013, sales consisted of 1,600 units. It is estimated that warranty repairs will average $10 per unit sold, and 30% of the repairs will be made in 2013 and 70% in 2014. In the 2013 income statement, Lager should show warranty expense of

A firm with assets that will convert to cash within the next 12 months, in excess of its obligations to pay cash in this same interval, has

Which inventory cost flow assumption emphasizes the balance sheet as opposed to the income statement?

Mystical Duds estimates that unsold women's clothing with a carrying value of $500 million has minimal market value given a change in fashion.To reflect the minimal market value of the merchandise, Mystical Duds

Cool Pools Construction installs swimming pools.They calculate that warranty obligations are 3% of gross sales.For the year just ending Cool Pools' gross sales were $1,450,000.Due to previous quarter recognitions, the Warranty Liability account has a credit balance of $28,700. REQUIRED: Determine the year's total warranty liability and journalize any necessary value to establish the year's liability at December 31st.

Which of the following is/are correct regarding the valuation of inventory?

U.S.GAAP and IFRS requires firms to use specific identification for inventory valuation and cost-of-goods-sold whenever feasible.

U.S.disclosure rules require that a LIFO firm must disclose ending inventory either at its current cost or on a FIFO cost-flow basis.

A firm using FIFO had a beginning inventory of $48,000, an ending inventory of $56,000, and a pretax income of $400,000.If it had used LIFO, its beginning inventory would have been $20,000, and its ending inventory would have been $16,000.From the information provided, one can conclude that:

U.S.GAAP specifies that, in the context of inventories, market means

The current ratio, also called the working capital ratio, is current assets divided by current liabilities.

Which of the following is/are true regarding the Work-in-Process Inventory account?

The accountant's definition of working capital is the same as the definition often used in finance.

On December 10 of the current year, XTREME Sports Inc.receives an advance of $50,000 from a hockey team for 20,000 custom-made shirts with the team's logo, which the team intends to distribute to fans entering a hockey game during the first week in January.XTREME Sports Inc.completes the manufacturing of the shirts on December 30, intending to ship them on December 31 before its accounting period ends.Unfortunately, a snowstorm on December 31 prevented their shipment.XTREME Sports Inc.recorded this transaction as a sale for December, and reduced its inventory accordingly.It set the items aside in its shipping room on December 31 with a clear sign to its own personnel conducting a physical inventory on that date and to its auditors who were observing the count that the items were not to be counted as inventory.These actions