Inventory Accounting

In: Business and Management

Submitted By sgoel4
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HW assignment #2-MGMT640-9040- DR Jiya jain | September 12
2011
| Submit the Homework Assignment (3.2, 3.5, 3.20, & 3.26). | Sunita Goel |

Q. 3.2 Inventory accounting: Differentiate between FIFO and LIFO.
Ans 3.2 LIFO and FIFO are the 2 most common inventory valuation methods and affects both the balance sheet and income statement.
LIFO: last out, or LIFO, calls for the firm to attribute any sale made to the most recently acquired and most expensive inventory. During the inflationary prices period, the firm using this method would have the highest cost of goods sold, the lowest net income and lowest inventory value.
FIFO: First in, first out, or FIFO, refers to the practice of recognizing a sale as being made up of inventory that was purchased earlier and having the lowest cost. During rising prices, firm using FIFO will have lowest cost of goods sold, the highest net income and the highest inventory value.
FIFO reporting leads to higher current asset value and higher net income. Because inventory valuation methods can have a significant impact on both the income statement and the balance sheet, when financial analysts compare different companies, they make adjustments to the financial statements for differences in inventory valuation methods. Although firms can switch from one inventory valuation method to another, this type of change is an extraordinary event and cannot be done frequently.

Q. 3.5 Working capital: Laurel Electronics reported the following information at its annual meetings: The Company had cash and marketable securities worth $1,235,455, accounts payables worth $4,159,357, inventory of $7,121,599, accounts receivables of $3,488,121, short-term notes payable worth $1,151,663, and other current assets of $121,455. What is the company’s net working capital?
Ans 3.5 Laurel Electronics Working Capital | | Current Assets…...

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