Chapter 8 WWW Cases
Case 8-12 Inventoriable Costs
Frank Holland, an inventory control specialist, is interested in better understanding the accounting for inventories. Although Frank understands the more sophisticated computer inventory control systems, he has little knowledge of how inventory cost is determined. In studying the records of Zippy Enterprises, which sells normal brand-name goods from its own store and on consignment through Touk Inc., he asks you to answer the following questions.
Required:
- Should Zippy Enterprises include in its inventory normal brand-name goods purchased from its suppliers but not yet received if the terms of purchase are f.o.b. shipping point (manufacturer's plant)? Why?
- Should Zippy Enterprises include freight-in expenditures as an inventory cost? Why?
- If Zippy Enterprises purchases its goods on terms 2/10, net 30, should the purchases be recorded gross or net? Why?
- What are products on consignment? How should they be reported in the financial statements?
Case 8-13 Accounting for Purchase Discounts
Companies record purchases of inventory on account having terms that allow cash discounts under either the net method or the gross method. The net method is generally considered theoretically sounder than the gross method.
Required:
Describe the advantages and disadvantages of both methods.
Case 8-14 Accounting for Inventory
U. S. GAAP and international accounting standards currently differ on some aspects of inventory accounting.\
Required:
Discuss these differences.
Case 8-15 Financial Analysis
Log onto the World Wide Web and search for the annual reports of three domestic Fortune 1000 companies and three international companies.
Required:
a.Review the balance sheets for the three domestic companies and answer the following questions for the last reporting year:
i.Do the companies disclose any short-term investments? If so, what method is used to account for these short-term investments?
ii.What inventory cost flow methods are the companies using?
iii.Compute the working capital for each of the companies.
b.Review the balance sheets for the three international companies and answer the following questions for the last reporting year:
i.Do the companies separately disclose current assets and current liabilities?
ii.Do the companies disclose any short-term investments? If so, what method is used to account for these short-term investments?
iii.What inventory cost flow methods are the companies using?
- Compute the working capital for each of the companies.
Financial Analysis Case
Evaluate your company’s working capital position.
Required:
a.Compute the following ratios for your company and its two competitors:
i. Working capital
ii. Current ratio
iii. Acid test ratio
iv. Cash flow from operations to current liabilities
v. Accounts receivable turnover ratio
vi. Days in receivables
vii. Inventory turnover ratio
viii. Average days in inventory
b.Assess the relative working capital position of your company.