Question

Consider each of the following independent situations:
Case A Inventory was received and was recorded at the invoice price of $ 56,000. The goods had neither been sold nor paid for at year- end. Consequently, a 2% discount was not taken.
Case B In the lower- of- cost- or- market valuation at year- end, replacement cost was used as the definition of “market.” The evaluation resulted in a writedown of $ 135,500.
The company reports that although its supplier’s prices were lower for certain products at year- end, thus causing the writedown, both its prices to its own customers and its direct selling costs had remained at constant levels.
Case C Inventories costing $ 65,000, with a sales price of $ 97,000, were with a customer on consignment.
These goods were excluded from the physical inventory count, and the $ 97,000 sale was recorded in the current fiscal year because final sale was reasonably assured— in the past, this customer has always been able to sell all the goods sent on consignment.
Case D At the end of 20X4, Sino- India Inc. entered into a binding commitment to buy 150 units of a certain type of inventory at a cost of $ 16,000 per unit by the end of 20X7. In 20X5, the company bought 70 units, all of which were used in production. In 20X6 the company purchased 45 units and recorded them in inventory at $ 720,000 ( i. e., 45 × $ 16,000). The market value per unit had been $ 17,000 during 20X4, dropped to $ 14,000 in 20X5, and rose again to $ 15,500 by the date of the 20X6 acquisition.

Required:
For each situation, describe the accounting policy decision. Describe the impact that the chosen policy has had on the income statement and SFP. If the company’s policy is not correct or if there is an alternate policy that should be considered, explain the alternative.



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  • CreatedFebruary 17, 2015
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