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CHAPTER 8 INVENTORIES AND THE COST OF GOODS SOLD
SUGGESTED ANSWERS TO DISCUSSION QUESTIONS
1. The be of sell represents an assetâ€" stock certificateâ€"until the merchandise is sold. At the date of sale, the greet of the merchandise is reclassified as an expenseâ€" hail of goods soldâ€"which is matched against the related gross revenue revenue. 2. The use up of a cost fall down assumption eliminates the withdraw for separately identifying each unit sold and looking up its cost. Thus, the time and effort involved in recording the cost of goods sold can be reduced significantly. In addition, the use of a flow assumption enables management to match sales revenue with relatively current merchandise costs and similarly to minimize the companys income taxes expense. 3. Generally accepted report principles permit the use of inventory cost flow assumptions whenever the occurrences comprising the inventory ar similar in terms of cost, function, and sales price. In measuring the results of operations, accountants consider the flow of costs to be much important than the sensible flow of specific units of merchandise. Therefore, a cost flow assumption need not correspond to the physical movement of the companys merchandise. 4. a. Under the ordinary-cost rule, all units in the inventory ar valued at the same average cost.



(The average cost is recomputed after every purchase transaction.) Therefore, the cost of goods sold is base upon this average cost per unit. b. The FIFO flow assumption means first-in, first-out. Therefore, each sale is assumed to represent of the oldest units in the inventory, and the unit costs in the oldest cost layers are transferred to the cost of goods sold. c. LIFO means last-in, first-out. Thus, the most recently acquired units are assumed to be the first sold, and the cost of goods sold is based upon the most recent cost layers. 5. The specific identification method should be used by the art gallery. Each item is unique and prices vary widely. Therefore, the gross profit on...If you want to demoralise a full essay, order it on our website: Ordercustompaper.com



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