June 2025 Chapter 6 Flashcards
(17 cards)
During periods of inflation ending inventory and income tax payable using LIFO be higher or lower than FIFO?
LIFO would be lower in Income tax payable and ending inventory
How is inventories measured using the FIFO method?
lower of cost or NRV
basically the cost of inventory or NRV which ever is lower
How is inventories measured using the LIFO method?
Usually under the lower of cost or market value
Market value maximum is NRV or Minimum is NRV minus profit
Election of FV option (FVO) for financial assets
results in recognition of unrealized gains and losses in earnings of business entity
When comprehensive income an unrealized holding loss on an investment in AFS reclasssfication?
the entry is unrealized loss should be credited to the OCI account
Periodic LIFO COGS?
Under the periodic LIFO COGS is calc using the costs of the most recent inventory purchase first until the total quantity sold is reached
Weighted AVG COGS?
Calc by determining AVG cost per unit of all inventory and mutiplying it by the number units sold
Moving AVG COGS?
Moving AVG method the COGS is calc using the AVG cost per unit and recalculated each time a new purchase is made
LIFO during inflation what happens to COGS and ending inventory?
LIFO would have a high COGS due to it selling it’s most expensive items first due to inflation
Inventory would be lower due to the lower cost. The lower cost item wouldn’t be touch due to the LIFO method
Net income and gross profit will be lower
Taxes will be lower as well
FIFO during inflation what happens to COGS and ending inventory?
FIFO COGS will be lower due to being able to sell the cheapest cost first
Ending inventory value it will produce higher because it sold the recent and priciest product first
End result the Net income and gross profit will be higher and taxes will be higher as well
Explain how to CALC weighted AVG method, COGS?
To calc the COGS using the weighted AVG method we need to total the units and costs.
Once we obtain that we need total we need to divide the units total by the cost total to get a AVG cost price
Next we multiply the AVG cost price by the amounts of units sold we get the Moving AVG COGS
What happens to ENDING INVENTORY when it’s overstated?
Meaning inventory is too high which in result will cause a decrease in COGS and an increase in net income
When there is a inventory error does it reserve the next year?
Yes let’s say if ending inventory is overstated this year which will cause the BEGIN inventory for next year to increase
What happens to ENDING INVENTORY when it’s understated?
When this happens ending inventory is too low this will cause COGS to go UP and net income to go DOWN
What is a way to remember the ending inventory overstated/understated?
COGS moves the opposite of ending inventory and net income moves with COGS
