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Chapter 8: Question 4Q (page 421)

Mishima, Inc. indicated in a recent annual report that approximately $19 million of merchandise was received on consignment. Should Mishima, Inc. report this amount on its balance sheet? Explain.

Short Answer

Expert verified

No, Mishima Inc. cannot report the consigned merchandise into its balance sheet as it has no control over it.

Step by step solution

01

Consignment sale

A consignment sale is a type of sale agreement in which the title and ownership of the merchandise remain with the seller (consignor). The consignee only takes responsibility for selling them.

02

Reporting in balance sheet

In the given case, Mishima Inc. is a consignee who has taken the responsibility of selling the goods. But the title and the ownership of merchandise do not belong to Mishima Inc.

Thus Mishima Inc. cannot report merchandise amounting to $19 million on its balance sheet.

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Most popular questions from this chapter

John Adams Company’s record of transactions for the month of April was as follows.

Purchases Sales

April 1 (balance on hand) 600 @ \( 6.00 April 3 500 @ \)10.00

4 1,500 @ 6.08 9 1,400 @ 10.00

8 800 @ 6.40 11 600 @ 11.00

13 1,200 @ 6.50 23 1,200 @ 11.00

21 700 @ 6.60 27 900 @ 12.00

29 500 @ 6.79 4,600

5,300

Instructions

(a) Assuming that periodic inventory records are kept in units only, compute the inventory at April 30 using (1) LIFO and(2) average-cost.

(b) Assuming that perpetual inventory records are kept in dollars, determine the inventory using (1) FIFO and (2) LIFO.

(c) Compute the cost of goods sold assuming periodic inventory procedures and inventory priced at FIFO.

(d) In an inflationary period, which inventory method—FIFO, LIFO, average cost—will show the highest net income?

On January 1, 2017, Bonanza Wholesalers Inc. adopted the dollar-value LIFO inventory method for income tax and external financial reporting purposes. However, Bonanza continuedto use the FIFO inventory method for internal accounting and management purposes. In applying the LIFO method, Bonanzauses internal conversion price indexes and the multiple pools approach under which substantially identical inventory items aregrouped into LIFO inventory pools. The following data were available for inventory pool no. 1, which comprises products A andB, for the 2 years following the adoption of LIFO.

FIFO Basis per Records

Unit Total

Units Cost Cost

Inventory, 1/1/17

Product A 10,000 \(30 \)300,000

Product B 9,000 25 225,000

\(525,000

Inventory, 12/31/17

Product A 17,000 36 \)612,000

Product B 9,000 26 234,000

\(846,000

Inventory, 12/31/18

Product A 13,000 40 \)520,000

Product B 10,000 32 320,000

$840,000

Instructions

(a) Prepare a schedule to compute the internal conversion price indexes for 2017 and 2018. Round indexes to two decimal places.

(b) Prepare a schedule to compute the inventory amounts at December 31, 2017 and 2018, using the dollar-value LIFO inventory method.

Question: Shania Twain Company was formed on December 1, 2016. The following information is available from Twain’s inventory records for Product BAP.

Units Unit Cost

January 1, 2017 (beginning inventory) 600 $ 8.00

Purchases:

January 5, 2017 1,200 9.00

January 25, 2017 1,300 10.00

February 16, 2017 800 11.00

March 26, 2017 600 12.00

A physical inventory on March 31, 2017, shows 1,600 units on hand.

Instructions

Prepare schedules to compute the ending inventory at March 31, 2017, under each of the following inventory methods.

(a) FIFO (b) LIFO. (c) Weighted-average (round unit costs to two decimal places).

Jane Yoakam, president of Estefan Co., recently read an article that claimed that at least 100 of the country’s largest 500 companies were either adopting or considering adopting the last-in, first-out (LIFO) method for valuing inventories. The article stated that the firms were switching to LIFO to

(1) neutralize the effect of inflation in their financial statements,

(2) eliminate inventory profits, and (3) reduce income taxes. Ms. Yoakam wonders if the switch would benefit her company.

Estefan currently uses the first-in, first-out (FIFO) method of inventory valuation in its periodic inventory system. The company has a high inventory turnover rate, and inventories represent a significant proportion of the assets.

Ms. Yoakam has been told that the LIFO system is more costly to operate and will provide little benefit to companies with high turnover. She intends to use the inventory method that is best for the company in the long run rather than selecting a method just because it is the current fad.

Instructions

(a) Explain to Ms. Yoakam what “inventory profits” are and how the LIFO method of inventory valuation could reduce them.

(b) Explain to Ms. Yoakam the conditions that must exist for Estefan Co. to receive tax benefits from a switch to the LIFO method.

Question:Data for Amsterdam Company are presented in BE8-4. Compute the April 30 inventory and the April cost of goods sold using the LIFO method.
See all solutions

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