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Introduction: Inventory includes raw materials, work-in-process goods and finished products, which are held with the purpose of sale.
Given: The controller of GS Company has hired you as an assistant controller. In order to determine your expertise, he asks you the following questions.
(a)
To explain:
A company is involved in the wholesaling and retailing of automobile tyres for foreign cars. Most of the inventory is imported, and it is valued on the company’s records at the actual inventory cost plus freight-in. At year-end, the warehousing costs are prorated over cost of goods sold and ending inventory. Are warehousing costs considered a product cost or a period cost?
(b)
To explain: A certain portion of a company’s “inventory” is composed of obsolete items. Should obsolete items that are not currently consumed in the production be classified as part of inventory?
(c)
To explain: What is the proper way to report airplanes in the company’s financial statements, if, a company purchases airplanes for sale to others and the company charters and services the planes until they are sold?
(d)
To explain: A company wants to buy coal deposits but does not want the financing for the purchase to be reported on its financial statements. The company therefore establishes a trust to acquire the coal deposits. The company agrees to buy the coal over a certain period of time at specified prices. The trust is able to finance the coal purchase and pay off the loan as it is paid by the company for the minerals. How should this transaction be reported?
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Chapter 8 Solutions
Intermediate Accounting, 17th Edition
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