Financial Accounting

9th Edition

ISBN: 9781259222139

Author: Robert Libby, Patricia Libby, Frank Hodge Ch

Publisher: McGraw-Hill Education

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Inventory Valuation

Before discussing the topic inventory valuation let’s discuss the meaning of inventory. In accounting, inventory is also known as stock. Inventory means all the finished goods, materials, merchandise that a business holds for the purpose of selling it in…

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Textbook Question

Chapter 7, Problem 7.10P

(Chapter Supplement A) Analyzing LIFO and FIFO When Inventory Quantities Decline Based on an Actual Note

In a recent annual report, General Electric reported the following in its inventory note:

December 31 (dollars in millions)	Current Year	Prior Year
Raw materials and work in progress	$5,603	$5,515
Finished goods	2,863	2,546
Unbilled shipments	246	280
	8,712	8,341
Less revaluation to LIFO	(2,226)	(2,076)
LIFO value of inventories	$6,486	$6,265

It also reported a $23 million change in cost of goods sold due to "lower inventory levels.”

Required:

1. Compute the increase or decrease in the pretax operating profit (loss) that would have been reported for the current year had GE employed FIFO accounting for all inventory for both years.
2. Compute the increase or decrease in pretax operating profit that would have been reported had GE employed LIFO but not reduced inventory quantities during the current year.

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Chapter 7, Problem 7.9P

Chapter 7, Problem 7.1AP

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Chapter 7 Solutions

Financial Accounting

Ch. 7 - Why is inventory an important item to both...Ch. 7 - Prob. 2Q Ch. 7 - Prob. 3Q Ch. 7 - Prob. 4Q Ch. 7 - Prob. 5Q Ch. 7 - The chapter discussed tour inventory costing...Ch. 7 - Prob. 7Q Ch. 7 - Contrast the effects of LIFO versus FIFO on...Ch. 7 - Contrast the income statement effect of LIFO...Ch. 7 - Prob. 10Q

Ch. 7 - Explain briefly the application of the LCM concept...Ch. 7 - Prob. 12Q Ch. 7 - Consider the following information: ending...Ch. 7 - The inventory costing method selected by a company...Ch. 7 - Which of the following is not a component of the...Ch. 7 - Consider the following information: beginning...Ch. 7 - Consider the following information: beginning...Ch. 7 - An increasing inventory turnover ratio a....Ch. 7 - If the ending balance in accounts payable...Ch. 7 - Which of the following regarding the lower of cost...Ch. 7 - Which inventory method provides a better matching...Ch. 7 - Which of the following is false regarding a...Ch. 7 - Prob. 7.1ME Ch. 7 - Recording the Cost of Purchases for a Merchandiser...Ch. 7 - Identifying the Cost of Inventories for a...Ch. 7 - Inferring Purchases Using the Cost of Goods Sold...Ch. 7 - Prob. 7.5ME Ch. 7 - Matching Inventory Costing Method Choices to...Ch. 7 - Reporting Inventory under Lower of Cost or Market...Ch. 7 - Determining the Effects of Inventory Management...Ch. 7 - Prob. 7.9ME Ch. 7 - Prob. 7.1E Ch. 7 - Inferring Missing Amounts Based on Income...Ch. 7 - Prob. 7.3E Ch. 7 - Inferring Merchandise Purchases Abercrombie and...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Calculating Ending Inventory and Cost of Goods...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Analyzing and Interpreting the Financial Statement...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Evaluating the Choice among Three Alternative...Ch. 7 - Prob. 7.11E Ch. 7 - Reporting Inventory at Lower of Cost or Market...Ch. 7 - Prob. 7.13E Ch. 7 - Prob. 7.14E Ch. 7 - Prob. 7.15E Ch. 7 - Prob. 7.16E Ch. 7 - Prob. 7.17E Ch. 7 - Prob. 7.18E Ch. 7 - Prob. 7.19E Ch. 7 - Prob. 7.20E Ch. 7 - (Chapter Supplement A) Analyzing the Effects of a...Ch. 7 - (Chapter Supplement B) FIFO and LIFO Cost of Goods...Ch. 7 - (Chapter Supplement C) Recording Sales and...Ch. 7 - Analyzing Items to Be Included in Inventory Travis...Ch. 7 - Prob. 7.2P Ch. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Prob. 7.4P Ch. 7 - Evaluating the LIFO and FIFO Choice When Costs Are...Ch. 7 - Evaluating the Income Statement and Cash Flow...Ch. 7 - Evaluating the Effects of Manufacturing Changes on...Ch. 7 - Evaluating the Choice between LIFO and FIFO Based...Ch. 7 - Prob. 7.9P Ch. 7 - (Chapter Supplement A) Analyzing LIFO and FIFO...Ch. 7 - Prob. 7.1AP Ch. 7 - Evaluating Four Alternative Inventory Methods...Ch. 7 - Evaluating the UFO and FIFO Choice When Costs Are...Ch. 7 - Prob. 7.4AP Ch. 7 - Prob. 7.1CON Ch. 7 - Finding Financial Information Refer to the...Ch. 7 - Finding Financial Information Refer to the...Ch. 7 - Comparing Companies within an Industry Refer to...Ch. 7 - Prob. 7.4CP Ch. 7 - Using Financial Reports: Interpreting Effects of...Ch. 7 - Making a Decision as a Financial Analyst: Analysis...Ch. 7 - Evaluating an Ethical Dilemma: Earnings, Inventory...

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Solution Summary: The author calculates the increase or decrease in the pretax operating profit that would have been reported for the current year under FIFO accounting for all inventories for both years.

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Chapter 7 Solutions