Horngren-fnancial accounting(9e)-solutions-7.doc

CHAPTER 7 COVERAGE OF LEARNING OBJECTIVES LEARNING OBJECTIVES QUESTIONS EXERCISES PROBLEMS OTHER LO1: Link inventory valuation to gross profit. 25,26,30 34,35,37,46, 47 LO2: Use both perpetual and periodic inventory systems./P/OBJ 1,2,3,4,24,33 36,40,44,45 55,56,85 LO3: Calculate the cost of merchandise acquired. 5,6 38,39,41,42, 43,52 LO4: Compute income and inventory values using the three principal inventory valuation methods allowed under both U.S.GAAP and IFRS, and the one method allowed only by U.S. GAAP. 7,8,9,10,12, 13,14,32 50 58,59,63,64, 65,66,70, 72,74,75 89,90 LO5: Use the lower-of-cost-or-market method to value inventories under both U.S.GAAP and IFRS 21,22 51 61,77 LO6: Show the effects of inventory errors on financial statements. 23,31 48 62,69,80,86 88 LO7: Evaluate the gross profit percentage and inventory turnover. 49,53,54 57,83 LO8: Describe characteristics of LIFO and how they affect the measurement of Income (Appendix 7A) 11,16,17,18, 27,28 60,67,68,71, 73,76,78,79, 81,82,84 LO9: Determine inventory costs for a manufacturing company (Appendix 7B). 2,29 87 CHAPTER 7 7-1 Sales transactions are accompanied by recording of the cost of goods sold (or cost of sales). This is literally true under the perpetual system and conceptually descriptive under the periodic system. 7-2 The two steps are obtaining (1) a physical count and (2) a cost valuation. 7-3 Perpetual systems provide continuous inventory and cost of goods sold records. Periodic systems rely on taking a physical inventory to calculate and record cost of goods sold at the end of the period. 7-4 It is true that the periodic method requires a physical count to measure cost of goods sold and the perpetual method does not. However, for control purposes, it is important to undertake at least annual physical counts of inventory under the perpetual method, as well. The difference between what the accounting records show and the physical count will be due to