Chapter 8 Flashcards
What is Lower of Cost or Net Realizable Value (LCNRV)
A company abandons cost principal when value drops below cost
What is NRV
Estimated Selling Price minus predictable cost of completion, disposal and transportation
What is the journal entry for the COGS method
Cost of goods sold
Inventory
What is the journal entry for the Loss method
Inventory Loss
Inventory
Why do companies usually value item by item for LCNRV
1.) tax rules require it
2.) more conservative for b/s purposes
Lower of Cost or Market works well to measure…
Decline of value in inventory
Why do companies who use LIFO and Retail method like LCM
Because LCNRV results in significant costs
What do ceilings and floors help with in LCM
Over or Understating inventory
How do you calculate the floor in LCM
NRV-Normal Profit Margin
What are purchase commitments
Agreements to buy inventory weeks, months or even years in advance
When does purchaser recognize a lost in a Purchase commitment
when the contract price is greater than the market price
How would you record loss on purchase commitment
Loss on purchase commitments
Liability on commitment
When is Gross Profit Method Used
When the physical count of inventory is not practical or when a disaster happens
What are the Gross Profit Method Steps
1.) Determine COGAS
2.) Determing COGS by subtracting the gross profit from sales revenue
3.) Determine EI by subtracting COGS from COGAS
If you are given % of Cost how do you transfer to GP% of Sales
%/( 1 + %)
