PAIL ASSIGNMENT- Chapter 6 1. An item must possess two characteristics to be cla
ID: 2522284 • Letter: P
Question
PAIL ASSIGNMENT- Chapter 6 1. An item must possess two characteristics to be classified as inventory. What are these two characteristics? 2. What is just-in-time inventory management? What are its potential advantages? 3. What is the primary basis of accounting for inventories? Discuss the impact the use of LIFO has on taxes paid, cash flows, and the quality of earnings ratio relative to the impact of FIFO when prices are increasing. 4. 5. If you have 5 items on hand at the balance sheet date that cost $400 each and the current replacement cost is $350 per unit, under the lower-of-cost-or-market basis of accounting for inventories, what value should be reported for the five items on the balance sheet? Why? How does the average-cost method of inventory costing differ between a perpetual inventory system and a periodic inventory system? 6.Explanation / Answer
EXPLANATION 1 -- Following are the two characteristics --
a. The item must be owned by the respective company
b. It must be held for resale.
EXPLANATION 2 -- Just in time inventory management refers to Only receiving inventory when you need it in order to not have any excess on hand.
Its Potential advantages would be that you do not have to pay taxes on inventory that is just sitting there at the end of the year.
EXPLANATION 3 -- The primary basis of accounting for inventories is cost, which is defines as the price paid or consideration given to acquire an asset. The major objective of accounting for inventories is the proper determination of income through the process of matching appropriate costs against revenues.
EXPLANATION 4 -- Over the long term -- and often even the short term -- prices rise rather than fall. As long as prices are rising, using FIFO will produce a larger profit, a larger net income and, in turn, a larger tax bill. It's important to note here that "profit" isn't the same thing as cash flow.
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