Accounting Chapter 8 Homework Track The Cost Purchases During The

8–72 Intermediate Accounting, 8/e

Judgment Case 8–6

At the end of a reporting period it is important to ensure that a proper inventory

cutoff is made. A proper cutoff involves the determination of the ownership of goods

that are in transit between the company and its customers as well as the company and

its suppliers. If the shipment is made f.o.b. shipping point, then ownership is

transferred to the buyer when the goods reach the common carrier. If the shipment is

Ethics Case 8–7

Requirement 1

Without purchase of the additional units:

Sales (35,000 @ $60) $2,100,000

With purchase of the additional units:

Requirement 2

Discussion should include these elements.

Facts:

If Moncrief purchases the additional units at the end of the year under a periodic

Ethical Dilemma:

Should Moncrief exercise its right to purchase inventory at will, resulting in a

reduction in net income, or recognize the rights of Jim Lester to receive profit for the

sale of his product, shareholders’ rights to have their investment appreciate through

positive earnings, and government entities’ rights to collect tax on economic net

income?

8–74 Intermediate Accounting, 8/e

Real World Case 8–8

Requirement 1

The LIFO conformity rule permits LIFO users to present disclosures that report,

Requirement 2

2/2/14

Ending Beginning

Inventory Inventory

($ in millions)

Inventory as stated $5,651 $5,146

Requirement 3

Cost of goods sold for the fiscal year ended February 2, 2014, would have been

$52 million lower had Kroger used FIFO for its entire inventory. While beginning

Real World Case 8–9

Requirement 3

The following is based on Whole Foods’ 2013 financial statements. Answers

will vary depending on the financial statement dates chosen.

a. Whole Foods uses the last-in, first-out (LIFO) method for approximately 92.8%

b. Assuming that current cost approximates FIFO cost, the inventory disclosure

note indicates that, if FIFO had been used to value LIFO inventories,

inventories would have been higher than reported by $32 million at the end of

c. Inventory turnover = cost of goods sold divided by average inventory

8–76 Intermediate Accounting, 8/e

Communication Case 8–10

The dollar-value LIFO inventory estimation technique begins with the

determination of the current year’s ending inventory valued in terms of year-end costs.

It is not necessary for a company using DVL to track the cost of purchases during the

year. All that is needed is to take the physical quantities of goods on hand at the end

of the year and apply year-end costs.

Research Case 8–11

Requirement 1

The FASB’s codification citation that provides guidance for determining whether

an arrangement involving the sale of inventory is in substance a financing

Requirement 2

The FASB’s codification citation that addresses the recognition of a product

Requirement 3

The appropriate accounting treatment for this type of arrangement is for the

sponsor to record a liability at the time the proceeds are received from the other entity.

The sponsor does not record the transaction as a sale and does not remove the product

Requirement 4

Journal entry to record the “sale” (cash receipt):

Cash …………………………………………………………………….. 160,000

8–78 Intermediate Accounting, 8/e

Research Case 8–11 (concluded)

*The treatment of these costs depends on the accounting policies of the sponsor. For

Analysis Case 8–12

Requirement 1

($ in millions)

KOHL’S DILLARDS

Gross profit ratio = 6,944 = 36% 2,308 = 35%

19,031 6,532

Requirement 2

The objective of this requirement is to motivate students to obtain hands-on

familiarity with actual annual reports and to apply the techniques learned in the

8–80 Intermediate Accounting, 8/e

Analysis Case 8–13

Requirement 1

PetSmart values its inventories at the lower of cost or market. Cost is determined

Requirement 2

In addition to the purchase price, the initial cost of merchandise includes inbound

Requirement 3

($ in thousands)

Gross profit ratio = $1,889,160 = 31%

$6,111,702

Air France–KLM Case

Per note 4.15, AF uses the weighted-average method to value its inventory.